Starting a small company retirement plan with no match

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Topic Author
Ostrich
Posts: 4
Joined: Sat Jan 05, 2019 1:26 pm

Starting a small company retirement plan with no match

Post by Ostrich »

I have been pushing my company to start a retirement plan and have agreement from the CEO to proceed this year. We are a small startup and still not profitable, but things look good going forward. I thought it was going to just be a matter of choosing Vanguard, Fidelity, Guideline, or EF, but now realize that the requirement to do this with no match this year will be a problem. Presumably we will be profitable next year and can add the match.

Close to half our employees will probably be HCEs, so I can't see how we could possibly pass compliance testing for a 401(k). I plan to max out, and don't want to get a check back for $25k next year. If we choose a safe harbor 401(k) to avoid testing, then a 4% match (or 3% non-elective contribution) is required.

I thought a Simple IRA might work instead, but this also requires matching. I think we can reduce the match to 1% the first year, and match 3% after that. A reduced match in 2 out of every 5 years is allowed.

I am considering pushing for the Simple IRA with 1% the first year, but I am wondering if there is another options. Any suggestions?

--Edited to bump--
Topic Author
Ostrich
Posts: 4
Joined: Sat Jan 05, 2019 1:26 pm

Re: Starting a small company retirement plan with no match

Post by Ostrich »

Bumping to see if anyone has thoughts on this. As I have thought about this a little more, I feel like I should just push for a safe harbor 401k with the 3% company match (or whatever is required). The boss has indicated that he would prefer to start with no match, but I sense that he might give in if that would simplify the process.
CascadiaSoonish
Posts: 530
Joined: Tue Feb 13, 2018 10:44 am

Re: Starting a small company retirement plan with no match

Post by CascadiaSoonish »

I administer a Vanguard SIMPLE for our small company and it's worked out very well. Only downside is the lower contribution caps, but when we did the math the expense of any of the 401k variants was much higher, even when using some of the new low-cost providers.

SIMPLE IRA costs to the employer are super-low, too. That's worth considering in the overall cost of the plan. And the 3% match is a relatively small line item in the greater scheme of things, I just reviewed our corp returns and our IRA match expense was a small slice of revenue, and a chunk of that is now in my personal account. :sharebeer

I think the argument I'd make to the CEO is that it's not really that expensive, it's not hard to administer (especially if you do the SIMPLE) and it's a nice tax benefit for everyone.
Topic Author
Ostrich
Posts: 4
Joined: Sat Jan 05, 2019 1:26 pm

Re: Starting a small company retirement plan with no match

Post by Ostrich »

Thanks, I'm sure he would like that it is "simple" :D At this point I'll take anything deferred after partially phasing out of college tax credits last year.
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