Small Business Retirement Plans

Certain plans are simpler from a compliance perspective, while others require extensive annual compliance testing and/or annual analysis from an actuary. For the more complex category of plans, we work with the small business as the advisor to the plan and partner with an experienced Third-Party Administrator (TPA) with whom we have a relationship. Essentially, retirement plans fall into two categories for us: plans requiring a TPA and plans that don’t.

We can help clients establish and operate the following plans without involving a TPA:

• Solo or Individual 401(k)
• SEP IRA
• SIMPLE IRA
• Traditional IRA / Roth IRA / Spousal IRA

For these types of plans, we can help clients analyze and select the right type of plan for their business and needs, help prepare all the forms and documentation to establish the plan and open the accounts, and select and manage the assets for them. These types of plans are typically simpler in design but care still must be taken to set them up correctly. We work side by side with business owners to design the plan in a way that matches their desires for their business, tax situation, and employees. Because these plans do not need to involve a TPA, the compliance costs for the business owner are reduced. These plans allow for a great deal of flexibility when it comes to managing the assets and due to the structure of the plans, we can provide more customized management for the participants.

In conjunction with a TPA, we can help establish and operate the following plans requiring a TPA:

• Traditional Defined Benefit
• Cash Balance
• 401(k)s
  • Safe Harbor
  • New Comparability
  • Profit Sharing
  • Roth options
  • Other

These types of plans typically come into play in these scenarios: 1) small businesses where the owners want to make large contributions, 2) businesses with older highly paid employees and younger employees making less, and 3) businesses with larger numbers of employees. The TPA with whom we have a relationship is very skilled at plan design which is immensely valuable to business owners in these categories. The rules on these types of plans place more limitations on the investment options, but we can help the business select solid and diversified investment options for their employees and create a series of portfolios from which the employees can choose. In certain scenarios we may also be able to manage the owner’s accounts separately from the employees using a wider variety of investments.

Most business owners do not realize the potential these plans have when it comes to tax-deferred savings. While these plans are more costly when it comes to compliance, the cost can be more than offset by savings on the owner’s taxes. In particular, defined benefit plans have no limit legislated on annual contributions. Contributions are determined by an actuary who takes into account the investments in the plan and the participant’s age. These plans are not appropriate for everyone, but can offer a large tax savings in the right circumstances.

The selection of the appropriate plan is far from simple. There are many rules that need to be considered while also taking into account the legal structure of the firm, the number of employees, salaries paid to employees, and the number of hours employees are working, to name a few. Furthermore, each business owner is unique in terms of their desires for what the plan should achieve. Some business owners are looking to maximize their own contributions and tax savings while others are looking to boost benefits for employees for retention purposes. All of these aspects must be considered before settling on a plan and the specific design of that plan.

Metis Wealth can provide additional services to businesses by assisting in both the planning aspect of small business retirement plans (plan selection, plan design, and tax planning) and by being a resource on the investments once the plan has been established. We commit to meeting with all employees at least once per year, discussing investment options with them, encouraging employees to participate and contribute an appropriate amount, and being available to answer questions they might have. For business owners, we are always available as a financial planning resource at no additional cost.

If you are considering adding a retirement plan for your business, switching to a different type of retirement plan, or are simply wondering if there are any better options, please contact us.