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With the unemployment rate at its lowest level in more
than 20 years, attracting and keeping good employees can
be a real challenge. In a nationwide survey of human resource
professionals, retirement programs ranked among the top
five strategies for retaining employees.
Yet only 11 percent of the 1.7 million U.S. companies with
50 or fewer workers offer 401 (k) plans. If your business
doesn't currently offer a retirement program, what are your
options? Three of the most common are SEP, 401 (k), and
SIMPLE.
How SEP, 401(k), and SIMPLE Plans Stack Up
Advantages for Employers
SEP
• Generally low start-up and operating costs
• Contributions are tax deductible
• Can be started by most employers, including self'-employed
• Business not locked into making contributions every year
401(k)
• Employers can make contributions unrelated to employee
contributions
• Offers higher contribution limits than SIMPLE plans and
IRAs
• Employer can change percentage or amount of matching contribution
from year to year
SIMPLE
• Can be sponsored by most types of organizations
• Somewhat flexible contribution amount
• Owners can participate as owner/employees
• Fewer administrative costs than larger retirement Plans
Advantages for Employees
SEP
• Employee immediately owns all contributions
• Employer contributions not counted as income for income
tax purposes
• Employees can direct their own investments
• Upon employee's death, assets go to chosen beneficiary
401(k)
• Higher contribution limits allow employee to accumulate
potentially greater savings
• Higher contribution limits than SIMPLEs for certain individuals
• Potential to borrow against account balance for qualified
purposes
• Portability when employees change jobs
SIMPLE
• Contributions are transferable to another SIMPLE IRA tax-free
in a trustee-to-trustee transfer or to a non-SIMPLE IRA
after a two-year waiting period
• Employee immediately owns all contributions from self
and employer
• Employees can direct their own investments
1) 1997 Retention Practices Mini-Survey,
Society for Human Resource Management
2) Society of Professional Administrators and Record Keepers
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