Download - Small Business Retirement Plans

Small Business Retirement Plans

Updated 07/29/2008

Why Start a Retirement Program?

RETIREMENT

TAX- SAVINGS

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

Number of Years that Money is Invested

Saving $500 per month PRE-TAX*

Saving $500 per month POST-TAX*

10 Years $103,276 $89,993

20 Years $382,848 $281,473

30 Years $1,139,663 $689,419

*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?

Number of Years that Money is Invested

Saving $500 per month PRE-TAX* in a 401(k) account

Saving $500 per month POST-TAX in a Money Market Account

earning 4%

10 Years $103,276 $70,898

20 Years $382,848 $169,280

30 Years $1,139,663 $305,800

*Assuming 25% tax rate, 10% rate of return, compounded only monthly

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?

Cannot Predict Future, can only Prepare for it

ItemCost in

1985Cost in

2005

1 lb. Ground Beef $1.28 $2.30

1 Dozen Eggs $.74 $1.35

1 lb. Fresh Tomatoes $.70 $1.84

1 Gallon of Milk $1.14 $3.24

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

Amount you will need to

have saved up

To withdraw

4%

To withdraw

5%

$500,000 $20,000 $25,000

$1,000,000 $40,000 $50,000

$1,500,000 $60,000 $75,000

$2,000,000 $80,000 $100,000

$2,500,000 $100,000 $125,000

$3,000,000 $120,000 $150,000

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.

Attract Top Employees

Studies show that without benefits, outside of acquaintance or luck, a business owner cannot attract the best quality EMPLOYEES.

Research shows small businesses need retirement benefits*While some research shows that small business retirement plans are too expensive for their potential customers, a new survey underscores the fact that employers might want to reconsider that notion.

By Editorial Staff While some research shows that owners think small business retirement plans are too expensive, a new survey underscores the fact that employers might want to reconsider that notion.

Fidelity finds that 49% of workers with a retirement plan say the would not take a job with a company that doesn't offer one. 68% percent of employees said that a retirement plan is critical or very important. Just 36% of employers said it was critical or very important to their staff recruitment and retention efforts.

*© 2007 Employee Benefit News and SourceMedia, Inc.

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 OwnersBy 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:

1. How do I get money in a plan?

2. How much can I get in?

3. What are the 3 things I need to know to start a plan today?

4. How much is this going to cost me?

5. Will the government help pay for my plan?

How Do You Get Money In?

1. Salary Deferrals

2. Company Match

3. Profit Sharing

Matching0% to 4%

Profit Sharing0% 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

CombinedAnnual Maximum

up to$$ 49,000 $$

New Comparability,Age Weighted

How Can You Maximize Your 401(k)?

EmployeeFunded

Optional Employer

Contributions

Your 401(k) plan, easy as 1-2-3

3 Simple Decision to Start a Plan Today

Optional Company MatchVesting schedule Multiple Investment Options

Non-Broker Investment Options

Each offer multiple investment choices No front-end or back-end sales charges 100% of deferral gets invested No charge for initial “Enrollment Meeting”

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

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 Freedom Funds 2010









$125 per month $180 per month

Employer Matching and Vesting Options

Matching Options

Employer Matching

Contribution

Not to exceed this percentage

of salary

Employer’s maximum Matching

Percentage

SAFE HARBOR

100% of first 3%50% of next 2%

5% 4%

2 0% 0% 0%

3 25% 4% 1%

4 50% 4% 2%

5 50% 6% 3%

6 100% 3% 3%

Years of Vesting

from Date of Hire

Vesting Percentage

Option 1 Option 2 SAFE HARBOR

1 0% 0% 100%

2 20% 0% 100%

3 40% 100% 100%

4 60% 100% 100%

5 80% 100% 100%

6 100% 100% 100%

IRS/DOL

Money Manager

Participants

Employer

Payroll Bank

Record Keeper

Non-Paychex 401(k) Paradigm

The Paychex Advantage:A Seamless Flow of Contributions

Client Paychex

InvestmentProvider

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 Nondiscrimination reports Roth contributions Daily account balance updates Loan Provision 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.

$0

$250

$500

$750

2008 2009 2010

Tax Year

Small Business Tax Credit

Paychex is the #1 Provider of 401(k) Plans in America*

*As independently ranked by PlanSponsor Magazine, July 2008.

Partner Investment Options

Fixed/Target Managed Actively Managed