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STAFF & BENEFITS
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JUNE 30, 2000
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Pension Plans for Small Business
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A comparison of major retirement options and their key features, compiled by the Pension and Welfare Benefits Administration
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SEP-IRA
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Payroll Deduction IRA
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SIMPLE-IRA
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401(k)
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Profit Sharing
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Defined Benefit
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Money Purchase Plan
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Key
Advantage
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Easy to set up and maintain. |
Easy to set up and maintain. |
Salary reduction plan with
little administrative paperwork. |
Permits employee to contribute
more than in other options. |
Permits employer to create
large account balances for employees. |
Provides a fixed, pre-established
benefit for employees. |
Permits employer to make
a larger contribution than through other Defined Contribution Plans. |
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Employers Who Can Provide This Option
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Any business that does
not currently maintain any other retirement plan. |
Any business with one or
more employees. |
Any business with 100 or
fewer employees that does not currently maintain any other retirement plan. |
Any business with one or
more employees. |
Any business with one or
more employees. |
Any business with one or
more employees. |
Any business with one or
more employees. |
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Employer's Responsibilities
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Set up plan by completing
IRS Form 5305-SEP.
No employer tax filing required. |
Set up arrangements for
employees to make payroll deduction contributions. Transmit contributions
for employees to funding vehicle.
No employer tax filing required. |
Set up by completing IRS
F5304-SIMPLE or 5305-SIMPLE. No employer tax filing required. Bank
or financial institution does most of the paperwork. |
There is no model form
to establish a plan. Advice from a financial institution or employee benefit
advisor would be necessary.
Annual filing of IRS
Form 5500 required. Also requires special testing to ensure plan does
not discriminate in favor of highly compensated employees. |
There is no model form
to establish a plan. Advice from a financial institution or employee benefit
advisor would be necessary.
Annual filing of IRS
Form 5500 is required. |
There is no model form
to establish a plan. Advice from a financial institution or employee benefit
advisor would be necessary.
Annual filing of IRS
Form 5500. Actuary must determine funding obligations. |
There is no model form
to establish a plan. Advice from a financial institution or employee benefit
advisor would be necessary.
Annual filing of IRS
Form 5500 is required. |
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Funding Responsibility
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Employer contributions
only. |
Employee contributions
remitted through payroll deduction. |
Employee salary reduction
contributions and/or employer contributions. |
Employee salary reduction
contributions and/or employer contributions. |
Employer contribution level
can be determined year to year. |
Primarily employer; may
require or permit employee contributions. |
Employer contributions
only. |
Maximum Annual Contribution Per
Participant
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Up to 15% of compensation
or maximum of $24,000 (indexed). 1 |
$2,000 |
Employee: $6,000
per year (indexed). Employer: Either match employee contributions
$ for $ up to 3% of compensation (can be reduced to as low as 1% in any
2 out of 5 yrs.) or contribute 2% of each eligible employee's compensation,
up to $3,200 2 |
Employee: $10,000
(indexed). Employer/Employee combined: Up to a maximum of
15% of compensation or a maximum of
$30,000. 1 |
Up to a maximum of 15%
of salary or a maximum of $30,000. 1 |
Per plan terms, employer
may permit or require employee contribution. |
Up to a maximum of 25%
of salary or a maximum of $30,000. 1 |
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Minimum Employee Coverage Requirements
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Must be offered to all
employees who are at least 21 years of age, employed by the business for
3 of last 5 years and earned at least $400 in a year. |
Should be made available
to all employees. |
Must be offered to all
employees who have earned at least $5,000 in previous 2 years. |
Must be offered to all
employees at least 21 years of age who worked at least 1,000 hours in previous
year. |
Must be offered to all
employees at least 21 years of age who worked at least 1,000 hours in previous
year. |
Must be offered to all
employees at least 21 years of age who worked at least 1,000 hours in previous
year. |
Must be offered to all
employees at least 21 years of age who worked at least 1,000 hours in previous
year. |
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Withdrawals, Loans & Payments
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Withdrawals at anytime;
subject to current federal income taxes and a possible 10% penalty if the
participant is under age 59 1/2. |
Withdrawals at anytime;
subject to current federal income taxes and a possible 10% penalty if the
participant is under age 59 1/2. |
Withdrawals at any time.
If employee is under age 59 1/2, may be subject to a 25% penalty if taken
within the first 2 years of participation and a possible 10% penalty if
taken afterwards. |
Cannot take withdrawals
until a specified event, such as reaching 59 1/2, death, separation from
service or other event as identified in plan. May permit loans and hardship
withdrawals. Withdrawals may be subject to a possible 10% penalty if participant
is under age 59 1/2. |
May permit loans and hardship
withdrawals. Hardship withdrawals may be subject to a possible 10% penalty
if participant is under age 59 1/2.
Payment of benefits generally at
retirement. |
Payment of benefits generally
at retirement, may offer participant loans. |
Payment of benefits generally
at retirement, may offer participant loans. |
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Vesting
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Immediate 100% |
Immediate 100% |
Employee and employer contributions
vested 100% immediately. |
Employee contributions
vested immediately. Employer contributions may vest over time according
to plan terms. |
May vest over time according
to plan terms. |
May vest over time according
to plan terms. |
May vest over time according
to plan terms. |
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Contributor's Options
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Employer can decide whether
or not to make contribution year to year. |
Employee can decide how
much to contribute at any time. |
Employee can decide how
much to contribute. Employer must make matching contributions or contribute
2% of each employee's salary up to the set maximum. |
Employee makes contribution
as set by plan option. The employer may match. |
Employer makes contribution
as set by plan terms. |
Employer makes contributions
as set by plan terms. |
Employer makes contribution
as set by plan terms. |
1 Maximum compensation on which 1997 contributions can
be based is $160,000. For plan years beginning
on or after January 1, 1998, maximum compensation
on which contributions can be based is $160,000.
2 Maximum compensation on which 1998 employer 2% non-elective
contributions can be based is $160,000.
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