While retirement plans are one of the benefits that help attract and retain workers, surveys and government reports in recent years have shown that many small and mid-size businesses don't offer them. A 2017 report by the Pew Charitable Trusts said more than 40% of full-time workers at these companies did not have access to an employer-sponsored plan.
The Pew report included a survey of more than 1,600 small and mid-sized business owners or managers. More than 70% said retirement plans were too expensive to set up, and more than 60% said they didn't have the resources to administer plans.
Members of Congress are trying to increase incentives for small business owners to create retirement plans. A bill that increases the current $500 maximum tax credit for small businesses that set up plans passed the House Ways and Means Committee last month. The bill has bipartisan support, increasing its chances of full congressional approval.
Larger credits might persuade some owners to start plans; the Pew report cited financial incentives as one of the factors that would make starting a plan more attractive. A brief look at the types of retirement plans:
—SEP, or Simplified Employee Pension, plans are the simplest; they have the smallest amount of paperwork and reporting requirements. A bank or other financial institution can help set up a SEP, and documents don't need to be filed with the IRS. With an SEP, the employer makes contributions, but workers do not contribute to these accounts.
—SIMPLE, or Savings Incentive Match Plan for Employees, is available to companies with up to 100 employees. It enables employers to match worker contributions. There are more IRS requirements and paperwork to set up a SIMPLE, but it's still relatively easy.
—More complex plans known as qualified plans, which include the type of 401(k) plans many large companies have, require more paperwork that must be filed with the government. Many companies use benefits consultants, which is an added expense.
You can get more information about the plans from IRS Publication 560, Retirement Plans for Small Business . Owners should also get professional advice from attorneys, accountants or benefits consultants to determine which plan is best for them.
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