Small plans can bring big trouble

Small business retirement plans look great on paper. A Simplified Employee Pension (SEP) plan or Savings Incentive Match Plan for Employees (SIMPLE) Plan or a SIMPLE 401(k) is a great opportunity for small employers to maintain a retirement plan and avoid some of the headaches of being a qualified plan sponsor such as discrimination testing and in most circumstances, filing a Form 5500. There is also the savings impact with the lack of a need for a third-party administrator (except for SIMPLE 401(k) plans).


The problem with savings in administration is coupled that most of these small plan sponsors receive a lack of support. Over the past couple of months, I’ve had to deal with small plans that have had to spend thousands in correcting errors through the Internal Revenue Service for such items as not properly restating their plan documents in a timely fashion.


In addition, smaller plans have smaller contribution amounts, as well as requirements for uniformity between owners and employees. The plans may be free with little administrative costs, but there is a cost to them in multiple ways. If you have clients with these types of plans, make sure they have the support they need.

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