There are two main types of retirement plans — defined benefit plans and defined contribution plans. Defined benefit plans are generally expensive because employer contributions are designed to provide a predefined retirement amount for their employees. If the company has older employees, the annual amount to be set aside can increase substantially. However, defined contribution plans can be much more cost-effective, because contributions can be based on a percentage of salaries (up to certain limits) and employees can join in the savings effort by contributing some of their own monies pre-tax. Census data (ages, salaries, length of service) is important to know before recommending a specific plan. Good options might include a safeharbor 401(k) plan, where employees can contribute up to $15,500 of their salaries ($5,000 extra if they are over 50) and employers can limit their contribution to a match up to 4 percent (for those participating) or make a mandatory 3 percent of salaries (everyone, whether participating or not) contribution. The company can always choose to contribute more if they want (up to various limits). A Simple IRA plan, while providing a lower deferral limit for employees, has a lower mandatory match (3 percent match or 2 percent mandatory contribution). Plan administration costs vary, but there are many low-cost alternatives.

Small companies (typically defined as having less than 100 employees) have many wonderful options for establishing retirement plans that are very costeffective and beneficial both for the employer and the employee. They can run the gamut from very simple straightforward plans with little or no administrative costs, to complex multi-tiered plans that require the services of several different professionals. Prior to 2006 most small companies established SEP IRA or Simple IRA plans. These plans were relatively easy to administer, inexpensive and met the needs of most small businesses. As of January 2006, many small business owners began to look more closely at 401(k) plans because of two new benefits: the availability of the Roth 401(k) and the introduction of plans with very low fees. These new low-cost 401(k) plans offer the benefits of the SEP and Simple plans and much more. All participants have the option of contributing to either the traditional side of the 401(k) on a pre-tax basis, or contributing to the Roth side on an after-tax basis. For the business owner and their highly compensated employees (generally people whose income is too high to invest in a Roth IRA) the Roth 401(k) presents an opportunity to invest their retirement dollars in a very tax-advantaged manner. The employer still has the option to match contributions and that match is always made on a pretax basis. Because each company’s situation is unique, it would be best to consult a financial professional to determine which retirement plan best meets your company’s needs.

The cost of establishing and maintaining a company retirement plan has been an obstacle for many companies to start a plan. The good news is that over the last decade many new and less expensive plans have been established by Congress that make having a plan much less costly. A Simple plan is one example of that. In a Simple, the employee may withhold on a pre-tax basis up to $10,500 in 2008. (This amount is subject to cost-of-living adjustments for years after 2008.) Additional employee contributions (known as catch-up contributions) are allowed for employees age 50 or over. The additional contribution limit is $2,500 in 2008. The company is committed to a 2 percent nonelective employer contribution, where employees eligible to participate receive an employer contribution equal to 2 percent of their compensation regardless of whether they make their own contributions. The other option is a dollar-for-dollar match up to 3 percent of compensation, where only the participating employees who have elected to make contributions will receive an employer contribution, i.e., the matching contribution. The costs to operate a Simple are minimal to the company. There are also other plans that may work, so your employer should meet with an advisor and explore the opportunities.

Overall I think most people agree that working for a small business is very rewarding and offers some really good opportunities. However, one of the common drawbacks for small businesses is the benefits package. So here’s the good news you can share with your employer when it comes to retirement savings plans: 1. There are many different types of plans available SEPIRA, Simple IRA, Profit-Sharing Plan and 401(k) to name a few. 2. Some of the plans, like the SEP-IRA and Simple IRA, are very easy to set up and maintain. They also come in on the low side as far as administration costs. If your boss does not have an adviser to discuss these plans you could suggest they visit the T. Rowe Price or Charles Schwab websites. And by all means don’t forget to remind your employer that these plans are very beneficial for them as well when it comes to setting aside tax-deferred money for their own retirement.