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Offer a Retirement Plan Witout the Hassles

03/06/07

Why do only 18 percent of businesses with fewer than twenty-five employees offer retirement plans?

It’s not hard to figure out, they get scared off by the heavy administrative burdens mandated by ERISA, the Employee Retirement Income Security Act. They may also worry about funding and administering a retirement plan in the face of the many uncertainties of the business world.

But small employers can still offer a retirement “benefit” at little or no expense by helping employees fund their Individual Retirement Accounts (IRAS) through a simple payroll deduction. When you play by the rules, you avoid ERISA completely.

What are the rules? The so-called “safe harbor” from ERISA for small employers occurs when:

  • You make no contributions to the IRA.
  • Employees participate in the IRA on a completely voluntary basis.
  • You do nothing more than permit the IRA sponsor to publicize its program to employees without endorsing it.
  • Collect contributions through payrolldeductions or dues checkoffs.
  • Remit those contributions to the IRA sponsor.

    Employers, in addition, may not receive any money other than “reasonable compensation for services actually rendered.” In other words, you can’t make a profit by offering this service.

    You can, without running afoul of the law, pay modest administrative fees on behalf of employees to set up the plan, you can answer their questions about the mechanics of it, and you can refer them to plan sponsors for investment information.

    And to make the program even easier to administer you may, with certain conditions, limit the number of IRA sponsors to which employees may make payroll deduction contributions. You can even select one as the designated recipient. Just be sure, however, you don’t negotiate with an IRA provider to get special terms for your employees.

    There’s a bit of fine print you’ll want to understand before offering employees an IRA payroll deduction option. For more information, ask your accountant or payroll services, or go to:

    www.dol.gov/dol/pwba/public/regs/fedreg/final/99015410.htm.

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