Pub. 8 2018-2019 Issue 6

14 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S SEP Plans: Another Connection to Small Employers BY STEVE CHRISTENSON EXECUTIVE VICE PRESIDENT, ASCENSUS LLC C ommunity banks have a strong success rate when it comes to helping local employers build strong founda- tions for their businesses. Banks provide small business loans to allow owners to expand and grow. The banks provide commercial checking accounts so that owners can conduct the day to day business operations including meeting payroll. These are critical support functions that banks have provided throughout their history. But what if your bank could also help business owners invest in their own futures and help them retain good employees by offering a retirement plan? Business owners across the coun- try face a critical need. We are seeing the largest percentage of Americans actively working than we have in decades—the latest national unemployment figure was 3.8% 1 . This creates much greater competition for workers. Benefits play a key role inwhether someone will accept a position and alsowhether they stay with that employer. Healthcare and retirement benefits are the two key drivers in that decision. The Coverage Gap According to an AARP survey, 55 million workers do not have access to an employer-based retirement plan 2 . Without some sort of driver—either through an employer or though financial education—the average employee will not seek out a retirement savings option on her own. This lack of access is more pronounced withmicro employers (1–50 employees) and small employers (51–99 employees). According toMorningstar, only 48 percent of employees in the micro market have access to a retirement plan 3 . That number increases to 67 percent for small employers. With that level of coverage gap, you begin to understand why state and local governments have started to step in with other retirement savings options. Community banks also have an opportunity to fill the coverage gap by offer- ing retirement savings plans suited for small businesses, such as simplified employee pension (SEP) and savings incentive match plan for employees of small employers (SIMPLE) IRA plans. Today, we will focus on SEP plans. A Solution for Small Employers SEP plans are available to nearly every type of business, but usually attract small businesses or self-employed individuals. In a SEP plan, employers can choose to make Traditional IRA contributions (according to specific formulas) to themselves and eligible employees. An employer generally can contribute a maximum of the lesser of 25 percent of the employee’s com- pensation for that year or $56,000 for 2019.