Group Retirement Plans
Traditional 401(k)
These plans allow eligible employees to make pre-tax elective deferrals through payroll deductions. Employers have the option to make contributions on behalf of all participants or make matching contributions based on the employees’ elective deferral, or both. An employer must perform annual tests known as the ADP (Actual Deferral Percentage) and ACP (Actual Contribution Percentage) to ensure they are meeting the minimum guidelines and the plan meets specific non-discrimination requirements. This ensures that contributions are not discriminate in favor of highly compensated employees.
Simple 401(k)
These plans were created so that small businesses could have an effective, cost-efficient way to offer retirement benefits to their employees. Simple 401(K)'s do not fall under the annual nondiscrimination testing requirement like a Traditional 401(k). Simple 401(K) plans are offered to businesses with 100 employees or less. Employees who receive at least $5,000 in compensation within a calendar year or are expected to in the current calendar year qualify for this plan. Some employers may choose to have different minimum requirements for eligible employees. With a Simple 401(K) plan employers may choose to offer another option for retirement so employees who do not qualify for the Simple 401(k) may still save for retirement through their employer. Eligible employees for the Simple 401(k) cannot be enrolled in any other retirement plan with their employer. Employers may choose to contribute 3% of employee’s pay or non-elective contribution of 2% of each employees pay. Employees enrolled in a Simple 401(k) are full vested in all contributions. This plan has a straightforward benefit formula that allows for easy administration. It also gives employees the options to participate in loans or hardship withdraws.
Simple IRA
These plans relate similarly to the Simple 401(k) but do have some differences that might make them more appealing. Simple IRA plans were created for small businesses with 100 employees or less that earned $5,000 or more in a calendar year or are expected to in the current calendar year. Employers are not allowed to offer any other options for retirement benefits for employees if they participate in a Simple IRA plan. With this plan the employer is exempt from filing requirements. Employers may also choose their contributions, they can contribute up to 3% of compensation or 2% of non-elective contributions. Employees are given the option to contribute, if an employee chooses not to contribute and the employer has chosen to contribute 2% non-elective, the employer must contribute to the employees retirement even though the employee has elected not to contribute. This is a great option for employers who want an easy inexpensive way to offer employee retirement-benefits. This plan places responsibility on the employees and there is no non-discrimination testing required.
SEP-IRA
These plans are available to any size business. Unlike other retirement plans, employers are not required to file with a SEP plan. Employee's are 100% vested. This plan is easy to set up and monitor. Flexible annual contributions. SEP plans require an equal contribution amount for all eligible employees. SEP plans are significant for employers who want to set aside money for retirement for themselves and their employees.