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Finders keepers! Benefit options to attract and keep good employees

image Leann Ussery, CPA, Tax Manager Armstrong, Vaughan & Associates, P.C., Universal City, TX

SAN ANTONIO - Many companies in the construction industry are experiencing increased difficulty in attracting and keeping good skilled laborers. One way to edge out the competition is to offer better employee benefits. One employee benefit becoming more popular with construction companies is offering retirement benefits to employees. For the purposes of this column, we’ll explore four basic retirement plan options, but there are other options available.

 

 

Simple IRA
• A Simple IRA is arguably the least complicated and least expensive plan to set up. 
• Plans are available only to companies with 100 or fewer employees and no other retirement plan.
•Eligible employees can contribute up to $12,500/year, on a tax-deferred basis through payroll deductions.
• Eligible employees over 50 can contribute an additional $3,000/year if the plan allows.
• Employers can either elect to match up to 3% of the employee contributions or can make non-elective contributions of 2% of the employees’ annual salary.
• Eligible employees are established by the plan documentation, largely at the discretion of the employer.  You may choose to include all employees without restriction or you may limit to those who have earned at least $5,000 in compensation in any two calendar years preceding the current year or who are reasonably expected to receive $5,000 in compensation during the current year.
• Matching contributions are not taxable income to the employee until distributed but are a tax deduction for the company. 

Simplified Employee Pension (SEP)
• SEP plans are easy to establish, have low administrative fees, and are available to any size company.
• There are no employee contributions/deferrals.  All contributions are at the discretion of the employer, made by the employer for all eligible employees.
• Employer elects to contribute an equal percentage 0% to 25% of each eligible employees’ annual salary (maximum contribution of $55,000 for 2018).
• Eligible employees must include all over the age of 21 with three years of employment in the company.  Plans may allow for additional employees at employer discretion.
• Like Simple IRA’s, contributions are not taxable income to the employee until distributed but are a tax deduction for the company. 

Traditional 401(k)
• More complex to establish with higher administrative fees, but allows for more customization.
• Any size company may set up a traditional 401(k) plan although the higher cost tends to prohibit this option for small companies.
• Eligible employees can contribute up to $18,500/year (for 2018), on a tax-deferred basis through payroll deductions.
• Eligible employees over 50 can contribute an additional $6,000/year.
• Matching the employees’ elective deferrals (up to 25% of compensation) is an option, but not a requirement.
• Traditional 401(k) plans may also allow for employer discretionary profit-sharing contributions which might be a better fit if net income varies year-to-year.
• Unlike Simple IRA’s or SEP plans, vesting of the employer contributions is not necessarily immediate, but may specify a vesting schedule after a certain period of time or years of service.
• Plans must meet nondiscrimination requirements and require annual testing.   
• Matching contributions are not taxable income to the employee until distributed but are a tax deduction for the company subject to certain limits. 

Safe-Harbor 401(k)
• Safe-harbor 401(k) plans function just like traditional 401(k) plans except that employer contributions are required, generally at no less than 3% of compensation, and are immediately vested. 
• For many employers, this option is well worth the additional contribution requirement because there is no annual discrimination testing.  For this reason, it’s one of the fastest growing plans for small businesses.

Regardless of type of plan chosen, early distributions (before age 59½) are typically subject to penalties.
    Every employer has a different threshold for costs of employee benefits and plan costs vary greatly depending on your employee base and desired contributions.  Contact your tax professional for an individual in-depth analysis of various retirement plans, their costs, and potential tax savings. 
    Leann Ussery, CPA is tax manager of corporate/partnership returns and focuses on the tax needs of small-to-mid sized entities, including entities with multi-state tax issues.  Leann joined Armstrong, Vaughan & Associates, PC in 2008 after graduating from Angelo State University with an MBA in Accounting.  She can be reached at 210-658-6229.


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Carol Wiatrek meditor@constructionnews.net