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Retirement Plan Knowledgebase

Qualified Retirement Plans for Small Businesses

What size employer is considered a small business?

The U.S. Small Business Administration generally defines a small business as an employer with up to 500 employees (who according to the US Department of Labor employ nearly 40% of our country’s workforce). And while nearly 100% of our country’s medium and large businesses provide some form of qualified retirement plan for their employees, statistics indicate that only 30% of small businesses provide their employees with some form of a retirement plan.

A small employer is defined as an employer who had 100 or fewer employees who received at least $5,000 in compensation from the employer in the preceding year for purposes of:

  • Eligibility to establish a SIMPLE plan

  • Qualification for a tax credit for establishing a retirement plan (and plan must cover at least one non owner employee)

  • Qualification for a waiver of the user fee when submitting a plan to the IRS for a favorable determination letter (and plan must cover at least one non owner employee)

What is a Qualified Retirement Plan?

A Qualified Retirement Plan is an employer sponsored retirement plan that satisfies the requirements of Internal Revenue Code Section 401(a) in both its form and operation. Adopting a compliant plan document typically satisfies the form requirement; operating the plan in accordance with the provisions of the plan document typically satisfies the operation requirement. Plan qualification entitles the employer/plan sponsor and the plan participants to a myriad of benefits and features that include but may not be limited to:

  • Tax deductions (and sometimes tax credits) for contributions made to the plan

  • The tax-free growth on plan investments

  • The ability to transfer the accumulated benefits at retirement to an individual retirement account (IRA) or other qualified retirement plan

Failure to comply with the aforementioned standards subjects the plan to disqualification resulting in a potential loss of the plan’s favorable tax related benefits.

Why do such a small percentage of small businesses provide Qualified Retirement Plans?

  • The complexity of rules and regulations governing these plans

  • Adverse experience with a plan service provider

  • Limits on plan benefits, features, and investment options

  • Continuing requirement to update the plan, and reporting and disclosure

  • Cost associated with benefits for eligible employees

  • Professional cost associated with plan establishment and compliance

  • Fiduciary liability

  • Inability to access to an experienced cost effective service provider

Who is responsible for the administration of a Qualified Retirement Plan sponsored by a small business?

The employer plan sponsor is typically by definition, the “Plan Administrator” and is therefore ultimately responsible for compliance requirements that govern its plan. However, the employer/plan sponsor may engage a “Contract Plan Administrator” (commonly referred to as a third party administrator or TPA), to perform certain ministerial functions such as:

  • Preparation of plan documents

  • Calculation of employer contributions

  • Reconciliation of the trust assets

  • Calculation and processing of employee retirement benefit payments

  • Completion of the plan’s annual report to the IRS (Form 5500)

Milberg Consulting LLC (MC) is a third party pension administrator (TPA) focused on the distinctive needs of small businesses.  MC provides small businesses the services to establish a Qualified Retirement Plan and comply with the Federal reporting and disclosure.  Our 26-year tenure in the design, establishment and administration of these plans, assures our clients that their plans achieve their intended objectives while retaining their qualified status.

MC also provides services for medium and large employers.  However, these services are generally limited to those associated with fiduciary and plan design matters, pre or post merger compliance issues or the remediation of non-compliant plans.

IRS Publication 560 Retirement Plans for Small Businesses

Learn more about the specific services provided by Milberg Consulting LLC, or contact Barry R. Milberg at or (800) 965-0988 extension 101.

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