Small Business Retirement Plans Updated 07/29/2008
Why Start a Retirement Program?
CANNOT PREDICT FUTURE, ONLY PREPARE
ATTRACT BETTER QUALITY EMPLOYEES
RETAIN CURRENT EMPLOYEES
How much will I get from Social Security? Read the following excerpt from the Social Security Administration’s website: “Social Security was never meant to be the sole source of income in retirement.” A comfortable retirement is based on a “three-legged” stool of Social Security, company-sponsored retirement plans and personal savings.
Tax Savings There are two forms of tax savings: ANNUAL ONGOING UNTIL RETIREMENT Annually, the typical Paychex owner will save 30%-40% on every dollar put into a retirement plan. While this is important, the true POWER of a 401k plan is the Tax-Deferred (or Tax-Free through Roth Provision) growth the tax law allows. Outside of Post-Tax Annuities, no other vehicle allows your savings to grow without being taxed on a yearly basis. This power allows retirement dollars to grow at an incredible rate with time.
Pre-Tax Growth vs Post-Tax Growth *Assuming 25% tax rate, 10% rate of return, compounded only monthly
So you don’t want to take advantage of I.R.S. section 401? Questions to consider if you don’t want a forced savings plan:
Will You have the discipline to save EVERY month?
Will You take the time to make good investment decisions?
Will Your investment returns even keep pace with inflation?
*Assuming 25% tax rate, 10% rate of return, compounded only monthly
Cannot Predict Future, can only Prepare for it In addition to the battle against inflation as you can see in the chart on the right, retirees are living longer and longer. Recent studies have shown that a typical retiree can expect to live 20+ years. Therefore, one must acquire a large nest egg.
Cannot Predict Future, can only Prepare for it How Big of a Nest Egg? According to current life-expectancy figures, you could live 20 to 30 years after you retire at 65. To make sure your savings last as long as you do, experts say, you can’t afford to withdraw more than 4% to 5% from your nest egg each year, adjusted annually for the rise in the cost of living. (Of course, you’ll also receive some income from Social Security.) Here’s how big a personal nest egg you’ll need at retirement, depending on the annual withdrawals you plan to take.
Retention of Current Employees If you’re not offering a retirement plan to your employees, don’t be surprised to lose them to a competitor that does! Misconceptions about 401(k)s could cost Small Business Owners By Lynn Gresham Forty percent of workers in small companies say they would leave their job for one that provided a 401(k) plan, according to a survey conducted by Harris Interactive and sponsored by ShareBuilder 401(k), a subsidiary of ING Direct. . . .
Retention of Current Employees Only 3 ways an owner can retain their employees: 1) $$$$ - Pay so much money that an employee cannot afford to leave. 2) ENVIRONMENT - Make the environment so great that employee doesn’t want to leave even though they can make more money elsewhere. 3) LOW-COST BENEFITS - For the cost of one half (1/2) of a person for health insurance, you can offer a retirement plan to your whole company.
OK, so I think I need a Plan Questions we will now answer: How do I get money in a plan? How much can I get in? What are the 3 things I need to know to start a plan today? How much is this going to cost me? Will the government help pay for my plan?
How Do You Get Money In?
How Can You Maximize Your 401(k)? Matching 0% to 4% Profit Sharing 0% to 25% Automatic Per Pay Period Contribution $16,500 Salary Deferral (1%-96% of Pay) + $5,500 Catch up Contribution for those Age 50 and over Employee Funded New Comparability, Age Weighted Optional Employer Contributions Combined Annual Maximum up to $$ 49,000 $$
Your 401(k) plan, easy as 1-2-3 3 Simple Decision to Start a Plan Today
Optional Company Match
Multiple Investment Options
Non-Broker Investment Options Schwab Instl Select S&P 500 Pioneer Global High Yield Delaware Corporate Bond Vanguard Inflation-Protected Secs American Century Target Maturity 2025 Federated Automated Cash Management Trust FA Overseas FA Dividend Growth FA Equity Growth FA Growth Opportunities FA Mid Cap II FA Small Cap FA Balanced FA Government Income FA Intermediate Bond FA Strategic Income FA Money Market – Prime Fund Columbia Acorn International Quant Foreign Value SSgA International Stock Quant Emerging Markets Vanguard Small Cap Value Index Keeley Small Cap Value Columbia Mid Cap Value Delaware American Services Yacktman Columbia Marsico 21st Century Janus Contrarian FA Freedom Funds 2010 FA Freedom Funds 2015 FA Freedom Funds 2020 FA Freedom Funds 2025 FA Freedom Funds 2030 FA Freedom Funds 2035 FA Freedom Funds 2040 FA Freedom Funds 2045 FA Freedom Funds 2050 $125 per month $180 per month
Each offer multiple investment choices
No front-end or back-end sales charges
100% of deferral gets invested
No charge for initial “Enrollment Meeting”
Employer Matching and Vesting Options
IRS/DOL Money Manager Participants Employer Payroll Bank Record Keeper Non-Paychex 401(k) Paradigm
The Paychex Advantage: A Seamless Flow of Contributions Investment Provider Paychex Client Power of Paychex Integrated 401(k)
What Paychex Does For You
Required Legal Documents
Adoption Agreement Plan document Summary Plan Description
Quarterly management reports
Quarterly participant statements
Daily account balance updates
Toll-free employee telephone access
Participant Website via the Internet
Electronic recordkeeping and fund transfer
Preparation of Form 5500
Preparation of Forms 1099-R and 945
$1,500 Tax Credit for a New 401(k) Plan The Details By starting a new retirement plan this year, your company will receive a tax credit equal to 50% of the first $1,000 in administrative expenses. You will receive this credit for three years, beginning in 2009 when filing your company returns for tax year 2008. This credit is available to employers who have less than 100 employees earning at least $5,000 in the preceding year.
Paychex is the #1 Provider of 401(k) Plans in America* *As independently ranked by PlanSponsor Magazine, July 2008.