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Janice France-Pettit: Retirement planning for your business

Union Bank of California

Posted: June 5, 2010 4:55 a.m.
Updated: June 4, 2010 5:35 p.m.

According to the Small Business Administration, close to half of the U.S. workforce - about 58 million workers - do not have access to any type of retirement plan through their employers. Only 19.5 percent of workers in small private sector companies report participating in a retirement plan, and outside of work, each year only about 5 million people make contributions to individual retirement accounts.

As a business owner, you can offer retirement plans to help employees, as well as yourself, save more for the future.

There are many retirement plans you can select from, based on the size and type of business you own and retirement objectives.

Below is a summary of some retirement plan options for 2010:

Defined benefit plan
Large businesses are most likely to offer these types of plans. With this plan, employees are guaranteed a set payout (pension) after retiring. However, employees have no control over investment options, cannot make contributions and vesting may take years.

There are benefits to these plans, including no set contribution limits for employers. The maximum annual retirement benefit for employers is $195,000, or 100 percent of the participating average compensation for his/her highest three consecutive earning years.

For business owners who want a low-cost and low-maintenance plan, the Simplified Employee Pensions plan IRA may be beneficial. The plan is funded with tax-deductible employer contributions and you must offer it to every employee.

Employee contributions are not allowed.

As a benefit, the contributions may vary from year to year, allowing you to adjust if cash flow slows. Business owners who are employees of the corporation can contribute up to 25 percent of their compensation up to $49,000. If you are self-employed, you can contribute up to 20 percent of self-employment income or up to $49,000. Vesting is immediate for you and your employees.

Employers with up to 100 employees who do not maintain any other retirement plan are eligible for a Savings Incentive Match Plan for Employees IRA. All employees earning more than $5,000 are eligible.

The company is required to match the employee's contribution dollar-for-dollar up to 3 percent of salary (up to a maximum of $11,500 in tax year 2010). For those age 50 and older, catch-up contributions of $2,500 can be made each tax year.

Another option for the company is to contribute 2 percent of an employee's salary regardless of their contribution (limited to a maximum of $4,900). Vesting is immediate. Contributions are tax-deferred.

401(k) plans
For 2010, the IRS allows employee 401(k) contributions up to $16,500 a year. If you will be 50 or older in 2010, you may contribute an additional $5,500 in catch-up contributions.

The vesting is determined by the employer. Employees may contribute and the company may provide matching contributions; however, these are not required. For small businesses, the administrative costs are high and the management time involved can be expensive.

Profit-sharing plans
This retirement plan gives a person a part of the company's profits.

Annual contributions are made to your account and they will vary from year to year depending on how the company performs.

Employees must work at least 1,000 hours in the last year to participate.

For the employer, up to 25 percent of salary, not to exceed $49,000, can be contributed.

Employees cannot contribute their own funds to the profit sharing, and the vesting is determined by the employer.

Administration usually requires hiring a professional to manage.

With so many retirement plan options, you should consult your financial advisor today to find the one that best fits the needs and requirements of your business.

The foregoing article is intended to provide general information about retirement planning for businesses and is not considered financial or tax advice from Union Bank. Please consult your financial or tax advisor.
Janice France-Pettit is a senior vice president and regional manager for Union Bank, overseeing the Simi Valley, San Fernando Valley and Antelope Valley regions. Her column reflects her own opinion and not necessarily that of The Signal.



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