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The 401(k): Not SIMPLE, But Good Anyway
By Jerry Kalish
November 1 is an important deadline if you offer a SIMPLE for 2008 but would like to have a 401(k) plan next year. That's because it's the final date for the required 60-day notice that you must give to employees that the SIMPLE will not be maintained in 2009.
SIMPLE--Savings Incentive Match Plan for Employees--was created by the Small Business Job Protection Act of 1996. (Don't you just love the names Congress gives to tax legislation?) It's called "simple" for good reasons. It's easy to establish, relatively inexpensive, and also easy to maintain since it is exempt from the more complicated rules governing other types of retirement plans.
But in many cases, a SIMPLE just doesn't do enough.
So if you want to:
-Not cover practically all employees
-Make larger contributions
-Favor owners and highly compensated employees
-Not have 100% vesting of employer contributions
-Maybe have better investment options
-Have the Roth option
-Allow for plan loans
-Be able to buy tax-deductible life insurance
-Have better creditor protection
then you need a 401(k)/profit sharing plan. And yes, it is more complicated to maintain and accordingly more expensive.
But retirement planning is a lot like life. It's a series of trade-offs. And depending on your situation, this one could very well be one worth making.
Side Note: A SIMPLE can be rolled over to a 401(k) plan after a "two-year period" beginning on the date on which the individual first participated in the SIMPLE.
Jerry Kalish is founder and President of National Benefit Services, Inc., a Chicago-based employee benefit consulting and administrative firm that serves private-held companies, publicly traded companies, and public sector employers. He blogs at The Retirement Plan Blog and can be reached at jerry@nationalbenefit.com.
Comments (0)October 14, 2008 12:35 PM
