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Sweet marketing music

Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

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by Mark Greene
June 2003

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Choosing the right
retirement plan for your business

Right retirement plan
depends on nature of company

Next to health insurance, a retirement plan is one of the most attractive benefits employers can offer today.

Uncertainty about the future of Social Security and the desire to build a nest egg whose management they control has strong appeal to many job-hunters. All other things being equal, a job candidate likely will choose the company that offers a retirement plan.

But which plan? It used to be simple. You worked for a company for 40 years and when you left they gave you a gold watch and a pension. But now pre-tax withdrawals and 401(k) plans are the standard. Here’s a rundown of the types of retirement plans available to small, private-sector employers today, and what employers can achieve with each.

Defined benefit plan.

A defined benefit plan promises a specified monthly benefit at retirement. The plan may state this promised benefit as an exact dollar amount, such as $100 per month at retirement. Or, more commonly, it may calculate a benefit through a plan formula that considers such factors as salary and service.

A variation is the cash balance plan. It bases each participant’s retirement benefit on a hypothetical account. The balance of each account is determined by using a formula based on the participant’s salary and a pre-determined interest rate. Upon retirement, the hypothetical account balance is converted into an annuity, although the participant has the option of taking it as a lump sum.

Conventional 401(k) plan.

There is no limit on the number of employees that may participate in a conventional 401(k) plan, but it is most popular among employers with 25 employees or more.

The conventional 401(k) plan allows an employer to match employee contributions or make profit-sharing contributions to the plan. Though these contributions are not required and can be constructed under a variety of different formulas, the three sources of contributions — employee deferral, employer match, or employer profit sharing —make the standard 401(k) plan the most flexible defined contribution plan.

Safe harbor 401(k).

If your 401(k) plan takes time to administer and highly paid employees are limited by how much they can defer, you may prefer to adopt a safe harbor 401(k). To take full advantage of this plan design, an employer must make annual contributions that total either 4 percent of total employee compensation or 3 percent of total compensation of eligible employees who are not highly compensated.

A drawback of the safe harbor plan is the requirement that employer contributions be 100 percent vested. In cases where the employer is already providing a generous match and employee turnover is low, the safe harbor plan is worth considering.

Profit-sharing.

This structure offers employers a great deal of flexibility because it can be built into a defined contribution plan several ways. For plan designs 1 through 4 listed below, the employer contribution is limited to 100 percent of salary (to a maximum $200,000) or $40,000 per eligible employee, whichever is less.

1. Pay-to-pay. Under this formula, employer contributions are allocated according to each employee’s relative compensation. This is designed for employers who want to reward each employee with an equal percentage of the profits, i.e., each employee receives five percent of pay.

2. Integrated profit sharing. This design enables employees earning more than the Social Security taxable wage base ($87,000 in 2003) to receive a greater portion of the contribution to compensate for the smaller percentage of Social Security benefits they accrue. This plan works best for employers who want to provide additional contributions for highly paid employees.

3. Age-weighted. This plan is good for employers who want to provide additional benefits for older workers who are not necessarily highly compensated. Contributions are based on age and salary, giving older employees a greater portion of the contribution.

4. New comparability. You’ll want to consider this design if you are working to retain a group of highly skilled employees. The contribution is allocated to defined groups of employees, typically “preferred” and “non-preferred.” Non-preferred employees receive a set percentage of their compensation (such as five percent), with the maximum amount of the contribution going to the preferred employees.

Self-employed plan (Keogh).

Keoghs can be set up as defined benefit or defined contribution plans. You can establish a Keogh plan if you own a business or part of a business that is not incorporated, i.e., a sole proprietorship, partnership or limited liability company (LLC).

Employee stock ownership plans.

ESOPs use company stock to build equity that will become a retirement resource for your employees. Stock can be contributed by the employer to the plan or purchased by the plan (on the open market, from existing shareholders, or from the company) with cash contributed to the plan.

Money purchase plan.

Though recent changes in tax laws technically make this plan design obsolete, some employers still ask for it. It works well for businesses that are consistently profitable and the employer wants to provide a generous retirement benefit. It’s also good for self-employed individuals who want to shelter as much income as possible.

Simplified employee pension plans.

A SEP allows employers to make contributions on a tax-favored basis to employees’ individual retirement accounts (IRAs). SEPs are subject to minimal reporting and disclosure requirements. The advantage of a SEP over a regular IRA is that the contribution limits are higher; up to 25 percent of annual compensation, or a maximum contribution of $40,000. The disadvantage of a SEP, from an employer’s perspective, is that the participation and vesting rules for SEPs are extensive and less favorable than those for qualified plans.

Simplified incentive match plan for employees. A SIMPLE-IRA, like a 401(k) plan, allows employees to divert some compensation into retirement savings. Companies with fewer than 100 employees can use this plan.

For small businesses, there are a lot of options. A good benefits consultant can help you sort them out. Do keep in mind the educational materials the provider offers for employees and the method of distributing those materials. Employees will have just as many questions as you do.

And remember that in the end, you are best-equipped to choose the options that fit your company’s and employees’ needs.