San Diego Business Journal

Providing a retirement plan is becoming an important differentiating factor for business owners seeking to attract and retain high-quality employees.

Right now, more than 1 million businesses with 100 or fewer employees offer a retirement plan, according to the U.S. Department of Labor. And once those businesses offered a plan, they found that 81 percent of their employees chose to participate.

With more than 1 million companies and a high percentage of their employees participating, many business owners still ask, "Why should I provide a plan?" or say, "I would like to offer a retirement plan but it's all just too confusing."

Establishing a retirement plan could be one of the smartest business decisions you'll ever make. The right plan could be the key to giving both you and your employees a secure retirement.

- Reasons To Offer

A Retirement Plan

In addition to helping you and your employees prepare for a more secure future, a retirement plan can also help you:

o Attract and retain great people. People can be your single most important asset. A comprehensive benefits package that includes a retirement plan gives you an edge your competitors may not have.

o Improve morale. Establishing a retirement plan shows your employees that you care about their future and their families. A retirement plan gives your employees even more reason to remain committed to your business and its success.

o Gain significant tax advantages. Your company gains an immediate tax deduction for the amount you contribute each year. You and your employees save on taxes because you don't pay federal income tax on amounts contributed. In addition, you and your plan participants have the opportunity for tax-deferred investment gains.

o Keep the flexibility you need. Some retirement plans give you the option to reduce or even skip contributions in years when it just isn't in the budget.

- What To Consider

In Choosing A Plan

Businesses can offer a number of different plans, and choosing the right plan can be confusing. Fortunately, there are many tools available today to help you determine which plan is right for your organization.

Your first step in choosing a plan is to decide why you want a retirement plan and what you hope to accomplish by offering one. The retirement plan you choose should relate closely to your company's goals, whether that means low cost, ease and convenience, or the opportunity for you and your employees to invest the most you can toward your retirement.

In general, you'll want to consider the following factors:

o The size of your company. Some plans are available for any company with one or more employees, while others are restricted to companies of a certain size. Your company's incorporation status can also be a deciding factor.

o Who will make contributions. Depending on the plan you choose, you can make three contributions on behalf of your employees, your employees alone can make contributions, or some combination of both employer and employee contributions is allowed.

Some plans allow a business to vary or skip annual contributions, which is a significant advantage if you have unpredictable cash flow. Other plans, like a SIMPLE (Savings Incentive Match Plan for Employees)-IRA, set a mandatory level of employer contributions.

- Contribution

Levels Can Vary

o How much you want to contribute. If your goal is to gain the maximum tax advantages for your business, you can choose a program like a money purchase plan that carries a high contribution limit.

o Who will be responsible for investing. One advantage of a 401(k) plan is that the responsibility for investing plan assets rests with employees. Your only responsibility is to provide investment choices that comply with prevailing federal regulations.

o Cost and convenience. A plan like a SIMPLE-IRA or a SEP (Simplified Employee Pension)-IRA carries little administrative expense and is relatively simple to maintain, while other plans are more complex and require more maintenance. You don't have to choose a plan on this basis alone, though, as plan providers often can handle ongoing plan administration if you desire.

o Vesting and other features. Some plans allow you to decide when employees are vested in the retirement plan while others allow immediate vesting. You may also want to choose a plan that allows loans and in-service withdrawals, features that some plans offer.

Once you have considered the retirement plan features above, it is time to determine what type of plan best meets your objectives.

- Web Site Combines

Financial Resources

Not surprisingly, you can find a lot of information about retirement plans on the Internet. Merrill Lynch, for example, is co-sponsoring an interactive, educational Web site, (SelectARetirementPlan.org), in partnership with several organizations , the U.S. Department of Labor, the U.S. Chamber of Commerce and the U.S. Small Business Administration.

This public interest site combines information about retirement planning and employer-sponsored retirement plans with an interactive tool that provides step-by-step guidance for selecting the right plan for your business. The (SelectARetirementPlan.org) site also offers useful links to other online resources.

Although you can gather a lot of useful information about retirement plans online, you'll want to discuss your findings with your accountant, tax advisor or financial advisor. He or she can help you evaluate the plan you're interested in and weigh its advantages and benefits for your individual company.

Using accurate tools and the guidance of your financial advisor, you'll be able to pinpoint the plan that will help you attract and retain valuable employees and help everyone reach their financial and retirement goals.

Coghlan is first vice president, financial consultant, and certified financial manager for the Downtown San Diego office of Merrill Lynch.