While employers in the United States must not necessarily provide their workers with retirement plans by law, it is a good practice to establish one in your entity because you as a hiring party will then be a more preferable option for candidates.
There is a wide range of types — more than 10 — among which you can choose the one that fits your business’s needs and abilities. Whatever plan you choose, your workers will feel more protected. Many entities select the SEP, or “Simplified Employee Pension” plan, to make contributions to their workers’ pensions. A large number of such entities use IRS Form 5305-SEP, proposed by the US Internal Revenue Service, to speed up the process of involving the pension plan in business.
Briefly, this plan allows entities to start saving pension money for their employees quite fast (because it is easy to begin using the plan) and without bearing too many expenses (compared to other plan types). One of the advantages is that any entity, regardless of its size and number of workers, can use this plan. Even if you are self-employed, it is possible. In many cases, using SEP will also let organizations lessen their taxes to cover.
Defining what is the difference between one plan and another requires a separate review. So we hope that you, as an entity owner or representative, have explored the topic and are quite sure about your choice. Keep reading if you need to establish a simplified plan in your entity. If you are still in doubt, check the Service’s website to see the main advantages of this plan.
There are three simple steps you should accomplish to apply the plan to your organization:
Create the document
You can fill out IRS Form 5305-SEP or draw your own template if you feel like you want to add more details and conditions. The form itself is quite short, so some employers prefer making their own documents.
Inform all workers in question
All workers should know about the new plan you accepted and receive a copy of the form; all conditions you have set must be transparent to them.
Make an individual account for each concerned person
Each worker should receive their contributions on a special account. You must create accounts for everybody. There is a minimum sum you must transfer to each account; check the Service’s current information to see the rules and calculations.
If you are reading this review as an employee and realize that you still have no offerings regarding your plan, again, you must understand that your boss does not have such a requirement by law. You, in turn, can quit the company you are currently working for if you categorically disagree with such conditions. Probably, many other employers on the market will satisfy your need to participate in a pension plan.
However, if you like the job, it would be more reasonable to start saving the money you get for your future. You can create a separate bank account where you will transfer the sum you consider necessary from each salary you get.
No, they do not. But they should keep the form in their entities’ archive. Also, each concerned employee must receive their copy, so you as an employer must make a sufficient number of forms and deliver them to everyone who is included in the program.
If you are an employer seeking a proper template to set up your plan, you can use the above-mentioned form or ask experts for help, so they build an accurate template for your business.
Going for the first option makes sense because it is much quicker: you can get the form right here and now, and you do not have to pay any specialists from the outside. Just use our user-friendly form-building software to download the template without effort; our instructions below will show how to fill it out correctly. If needed, you also can get it on the Service’s site, but since you are on this page, why leaving, right?
See our short manual below after you get the form.
Add the Employer’s Name
Introduce the employer who has decided to provide their workers with a simplified plan. It should be the entity’s name here because the signing representative will indicate their name later.
Define the Conditions of Your Plan
You should choose several conditions of the plan your entity will use. In the text of Article II, you will see a couple of blank lines and boxes to mark.
To start, determine the age of workers who can participate in the plan. It should be no less than 21 years old — employees who are younger cannot sign up for the plan. Then, insert the number of years that employees should work for to be the plan participants (must be no less than three according to the SEP rules).
Read the following statements and indicate if they are applicable to your case or not by checking “includes” or “does not include” boxes.
Check the Requirements
In the second part, you will see a set of requirements one needs to be aware of when signing the form. Read them all and check if your entity is qualified for them. If any of those seem obscure, ask your entity’s accountant or tax expert for clarification.
Sign the Paper
You should accomplish a final step to establish the pension plan: sign the document. Near the signature, enter the date of signing. On the right, enter your name and title.
If you feel like reading more about the plans your organization can choose from, you must turn to the Service’s Publications. They describe every plan, information on how to start using it, its advantages and disadvantages, and so on.
Particularly, in case you have made a final decision regarding the SEP and want to find out more about it, you should check Publications 560, 590-A, and 590-B.