SARSEP is dead , we need to move on!

[Guest Brad Cozzi]

Hello:

I am the Director of Comp and Ben at growing tech startup in DC. We currently just hit the 70 ee mark. We still have our SARSEP. We need to change to something? But what? Please help, we are growing rapidly and do not have time for a lot of headaches yet we need something else, if for no other reason than the collective oppinion of the benefits community is the SARSEP is DEAD

[Bill Berke]

You could substitute a SIMPLE plan. This works excellently, but may have a limited life because SIMPLE plan is only good until you have 100 employees with more than $5,000 of income. See IRS Forms 5304 and 5305 for more details and the instructions and rules. They are simple(no pun intended). Otherwise, if you want to continue to allow employees to defer, then you are into a 401(k) plan and the required discussion is too long for this forum.

[Guest JPCMPLS]

I have worked with a number of small tech startups which have switched from SEPs and Simples to Safe Harbor 401(k) plans this year with nary a ripple. A number of low cost providers are out there. Talk to your SAR/SEP provider about a safe harbor 401(k). I am assuming that you are either not matching now or are used to making profit sharing like contributions in the 3% range.

[Larry M]

JPCMPLS is right - you can switch from sep to 401(k) BUT be wary!! Heed Bill Berke's implied advice.

There are many decisions to be made in determining the parameters of a 401(k) plan and a SAR/SEp provider is not the place to go to determine how you should structure the plan.

Get good, independent advice from a consultant who is working for you. You do not want to lock yourself into a "simple prototype" 401(k)just because it is easy to set it up.

[Guest Brad Cozzi]

Thank you for the advice... we are still considering our options, have it narrowed down to either a SIMPLE or an EE only contribution.

Still need to look at the testing of the contibution limits for the HC based on our contibution levels.

[Jon Chambers]

Hi Brad. We haven't talked for a while. Given your fact pattern, I'd strongly suggest a 401(k) structure over a SIMPLE. And be prepared to spend some money. It doesn't need to be a lot, but if you go too cheap, you will regret the decision, and it will cost you more in the long run. Safe harbor designs are good but not essential. Primarily, you want to select a plan provider with flexible operations, good documents, and the right fit for your needs. And your plan design should let you grow into where you want your company to be in the future.

[rcline46]

If you are a controlled group, then your SARSEP automatically includes all members of the group, and you may already be in trouble.

A fundamental rule of thumb, if you are dealing with ANYTHING that generates a tax deduction deal only with experts. For qualified plans, mutual fund salesmen, insurance salesmen and accountants are NOT experts. Deal with a local pension administration firm.