Two plans are specifically designed to make it easier for businesses with 100 or fewer employees to set up a pension plan. These two plans require very little paper work and have low administrative costs.

• SIMPLE – Savings Incentive Match Plans for Employees of Small Employers, and
  
• SEP – Simplified Employee Pension.

Other options include:

• 401(k) plans,
  
• Profit-sharing Plans,
  
• Payroll Deduction IRAs - while not a pension plan, this can help employees save for retirement, or
  
• Keoghs for self-employed individuals - profit-sharing and money purchase.

SIMPLE – Savings Incentive Match Plans for Employees of Small Employers

Employers with 100 or fewer employees can set up a SIMPLE.

• Employees may contribute a percentage of their salary, up to $10,000 a year.
  
• Each year, the employer contributes either:
  • an amount that is equal to the employee’s contribution (up to 3% of pay) or
    
  • a fixed contribution of 2% of the employees wages

Easy to set up:

• The employer fills out a short form.
  
• The employer finds a bank, mutual fund or other financial institution with which to set up the plan. The financial institution will complete additional paperwork.
  
• Administrative costs are low.

Good for employees:

• Employees are 100% vested in all contributions;
  
• Employees can choose where to invest their money; and
  
• Employees keep their accounts when they change jobs.

The Department of Labor has additional information and the forms needed to start a SIMPLE. Call 800-998-7542 or visit their website at www.dol.gov/ebsa/publications/. For the forms, see www.irs.gov/retirement/article/0,,id=96763,00.html.

SEP – Simplified Employee Pension

How it works:

• The employer chooses a percentage (up to 25% of compensation, with a maximum of $42,000) to contribute.
  
• Each year, the employer can decide how much to put into a SEP.

Easy to set up:

• The employer fills out a short form.
  
• The employer finds a bank, mutual fund, or other financial institution with which to set up the plan. The financial institution will complete additional paperwork.
  
• Administrative costs are low.

Good for employees:

• Employees are 100% vested in all contributions;
  
• Employees can choose where to invest their money; and
  
• Employees keep their accounts when they change jobs.

The Department of Labor has additional information and the forms needed to start a SEP. Call 800-998-7542 or visit their website at www.dol.gov/ebsa.

401(k) Plans and Profit-Sharing Plans

How 401(k)s work:

• Employees contribute a percentage of their pay to the 401(k) up to a certain limit.
  
• The employer may match the contribution.
  
• 401(k)s are more complex to administer than SIMPLEs, but may allow higher contributions.

How profit-sharing plans work:

• The employer bases contributions on business profits or a percentage of pay.
  
• The employer can change the percentage each year.

Payroll Deduction IRA

Even if an employer does not want to set up a retirement plan, it can provide a way for eligible employees to contribute to an IRA.

How this helps employees:

• Many individuals who are eligible to contribute to an IRA do not.
  
• Payroll deductions help individuals contribute smaller amounts each pay period, rather than trying to find a larger amount at the end of the year.

Keoghs - Profit Sharing, Money Purchase and a Combination

• Keogh’s are also known as HR 10 Plans.
  
• A Keogh plan includes coverage for a self-employed individual.
  
• Generally, you will need the help of an accountant, financial planner or financial institution to set one up.
  
• A Keogh has a higher administrative cost to set up and maintain.

• Profit Sharing Keogh
  • You can contribute up to 25% (with a maximum of $44,000) a year.
    
  • The percentage can change each year.

• Money Purchase Keogh
  • You select a percentage of income to contribute, up to 25% (a maximum of $42,000).
    
  • The percentage becomes fixed and the annual payments are mandatory. You would pay a penalty to the IRS if you fail to make the mandatory payment.

• Combination
  • You can chose to have both types of Keogh. For example, contribute 15% under the profit-sharing plan and 10% under the money purchase plan, for a combined total at the 25% of earned income ($42,000 maximum).