When trying to attract and keep the best talent, a strong retirement benefits package can be a game-changer for businesses. Single-Employer Plans (SEPs) represent the pinnacle of such offerings. By crafting a retirement plan tailored exclusively to their employees, businesses can provide a clear message of support and commitment to their staff’s long-term financial well-being. At California Pensions, we understand the pivotal role these plans can play. Join us as we discuss the details and potential single-employer plans can have on your business.
What is a Single-Employer Plan?
A single-employer plan (SEP) is an exclusive retirement framework designed by a company for the benefit of its employees. It stands apart from multiemployer (union-based) plans and pooled employer plans (PEPs), which cater to various entities. SEPs signify a commitment to staff welfare and financial stability beyond their working years. By securing a secure and comfortable retirement for employees, this approach strengthens the employer-employee relationship, fostering loyalty and a sense of shared success.
Types of Single-Employer Plans
Single employer plans come in two primary forms:
Defined Contribution (DC) plans:
These focus on the amount invested into the retirement fund, with benefits at retirement depending on investment performance.
Defined Benefit (DB) plans:
These assure a specific benefit upon retirement, determined by factors such as salary history and tenure.
Key Characteristics of Single-Employer Plan
Below are six critical areas that define these plans:
ERISA Compliance
The Employee Retirement Income Security Act (ERISA) sets minimum standards for most voluntarily established retirement and health plans in the private industry. Single-Employer Plans under ERISA must adhere to rules concerning their creation, operation, and maintenance, including fiduciary responsibilities, disclosure requirements, and the conduct of plan fiduciaries. Non-compliance can lead to significant penalties.
Customization
One of the primary advantages of SEPs is the high degree of customization available to the employer. These plans can be tailored to match the specific needs and goals of the company and its workforce. Customization options may include the design of the benefit formula, the type and amount of investments offered, and the implementation of features such as loans or hardship withdrawals, giving employers the ability to create a plan that aligns with their business strategy and employee incentives.
Employer Fiduciary Responsibility
With a SEP, the employer assumes a fiduciary responsibility to its participants. This means that they must act solely in the interest of the plan participants with the exclusive purpose of providing benefits to them. Managing investments, choosing service providers, and ensuring plan administration adheres to the highest standards is paramount. Failing to comply can lead to legal action from participants or penalties from regulatory agencies.
Administrative Burden
While SEPs are generally simpler and less costly than multi-employer plans, there’s still an administrative burden to consider. This includes plan documentation, filing of necessary reports, handling of participant inquiries, and managing plan amendments to comply with changes in laws. To alleviate this burden, employers can outsource plan administration to third-party administrators like California Pensions.
Contribution Limits
The IRS dictates annual limits on contributions made to employees’ SEP accounts. For single-employer defined contribution plans in 2025, the combined employee and employer contribution limit is $70,000. For defined-benefit plans, the limit is the lesser of $280,000 or 100% of the participant’s average compensation for their highest three consecutive calendar years.
Vesting Schedules
Vesting schedules determine when employees acquire non-forfeitable rights to their retirement benefits. SEPs can offer immediate vesting, where employees are entitled to their benefits as soon as contributions are made, or they can implement graded or cliff vesting schedules. These schedules can be an important tool in retention strategy, incentivizing employees to remain with the company longer to receive the full benefits of the retirement plan.
The Pros and Cons of Single-Employer Plans
Single employer plans offer several benefits; however, there are potential drawbacks that must also be considered. Consider the pros and cons when deciding if this plan is right for your organization.
Pros
- Control: Employers can steer the direction of the plan, aligning it with their corporate philosophy.
- Tailored Solutions: Design a plan that speaks directly to your workforce’s needs.
- Competitive Edge: Elevate your company’s appeal in the labor market.
- Tax Benefits: Reap the rewards of tax deductions and deferrals.
Cons
- Significant Fiduciary Liability: Employers carry the mantle of the plan’s success.
- High Administrative Demands: Steering these plans demands time and expertise.
- Potentially Higher Costs: Customization and administration might incur additional costs.
- Audit Requirements: Large plans necessitate regular audits, adding another layer to manage.
Is a Single-Employer Plan Right for Your Business? Let California Pensions Help.
Deciding on an SEP requires weighing several factors. Your business size, resource pool, desire for control, and the specific retirement needs of your employees all play a part. California Pensions provides unparalleled guidance, ensuring your SEP isn’t just a benefit, but a strategic asset.
We specialize in providing comprehensive retirement plan services tailored to your organizational needs. Whether it’s detailed plan design, recordkeeping, or regulatory compliance, our experts offer the necessary tools and guidance to ensure your retirement planning is both effective and seamless. Let us help you navigate the complexities of retirement benefits so you can focus more on what matters most—your business and your future.
Contact us today and take the first step towards a secure retirement plan.
