small biz column/bender/27"/mike1st/mark2nd



Retirement planning just became simpler for small business owners and their employees.

Starting this year, companies with 100 or fewer workers are able to sponsor a Savings Incentive Match Plan for Employees, or SIMPLE plan.

The SIMPLE plan has been criticized, including in this column (Dec. 23), as being a savings vehicle that is less attractive than the now-defunct Salary Reduction Simplified Employee Pension plan or SARSEP . However, I contend that a SIMPLE plan can be of significant value to a small business.

The new pension plan is part of sweeping legislation passed in August 1996 that can substantially alter the retirement landscape.

The Small Business Job Protection Act of 1996 and the Health Insurance Portability and Accountability Act is good news for many Americans, offering increased IRA contributions for married couples filing jointly, expanded 401(k) options, and extended tax deferrals for those choosing to work into their senior years.

The 1996 retirement laws also offer incentives for small companies to set up tax-deferred retirement plans, such as SIMPLE, and should allow more Americans to invest in their retirement.

How does a SIMPLE Plan work? It allows employees to make pre-tax salary deferrals into an IRA or 401(k) investment vehicle.

This is a significant development for smaller companies. In the past, employers with more than 25 employees were unable to offer a simplified salary deferral plan to their workers.

401(k) plans were often too costly to establish and maintain, and SARSEPs (Salary Reduction Simplified Employee Pension Plans) were restricted to companies with 25 or fewer employees. True to its name, the SIMPLE plan makes establishing and administering a retirement plan easier and more enticing to small business owners than in the past. Most administrative duties and costs associated with qualified retirement plans have been removed from the employer.

In addition, many of the complex rules and reporting requirements associated with qualified plans have been eliminated.

Small business owners may find the SIMPLE plan a flexible and feasible way to meet the challenge of providing for retirement.

To participate in a SIMPLE IRA plan, employees must have earned at least $5,000 in the past two years and expect to earn $5,000 in the current year. Workers can contribute up to $6,000 of income annually. Because there is no limitation on the percentage of earnings that can be deferred, the plan offers many employees an opportunity to defer a greater portion of their compensation.

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