Many organizations can get confused about retirement options for their employees. Please seek qualified financial guidance if you are trying to decide what type of plan to offer employees. Furthermore, these retirement plans are governed by the Employee Retirement Income Security Act (ERISA) regulations
Below is a list and explanation of each:
- IRA. Individual Retirement Accounts, or IRAs, are commonly associated with individuals rather than businesses. Like 401(k)s, there are regulations outlining how much can be contributed in a benefit year. There are also Roth IRA options.
- SIMPLE. SIMPLE stands for Savings Incentive Match Plans for Employees of Small Employers. These plans can be offered by employers with 100 or fewer employees. A SIMPLE plan can be a SIMPLE 401(k) or a SIMPLE IRA. As with most of these options, there are regulatory limits on the annual contributions. However, unlike traditional 401(k)s, SIMPLE 401(k)s and SIMPLE IRAs have the feature of immediate vesting of employer contributions. They also have fewer IRS reporting obligations, a benefit for many small employers.
- ESOP. ESOP stands for Employee Stock Ownership Plan. This is a stock investment plan for employees in which the primary stock is from the company itself.
- Profit-Sharing. A profit-sharing plan is a defined contribution plan in which the employer contributes to the plan with either company stocks or with cash. These types of plans may also be referred to as stock bonus plans in some cases. The contribution amount is determined by the employer, and it can change every year. There are limits to the contribution amounts, but these limits are higher than the typical 401(k) limits. The contributions can be invested and are not taxed until they are distributed.
- SEP. SEP stands for Simplified Employee Pension plans. An employer can set up a retirement account as an IRA on behalf of the employee and make contributions to it. Employers benefit from the fact that there are fewer reporting requirements with this type of retirement plan.
