Guide to Small Business Pensions

Select a plan that employees can contribute to

Most small businesses that have retirement plans use the type that includes an employee contribution, such as a 401(k).

I recommend: Review retirement plan pros and cons at the Internal Revenue Service Web site. See plan details in the PDF file of IRS Pub. 560 Retirement Plans for Small Business.

Understand the rules

SEP or SIMPLE? 401(k) or IRA? In an effort to serve many kinds of business entities, the government has created its usual thicket of confusing options. Get a grip first on where your organization fits.

I recommend: The U.S. Department of Labor, U.S. Chamber of Commerce and the Small Business Administration teamed up to – surprise – simplify things with this short guide (a PDF file) to choosing a plan.

Regulatory concerns for small business

Once you decide to offer a retirement plan, your legal responsibilities to members of the plan kick in, and they can last for a long time.

I recommend: A quick overview of what's called fiduciary responsibilities under federal law is posted by the U.S. Department of Labor.

See your local banker

Banks have moved into provisioning retirement plans, and you might find that your existing relationships can lead you to the best deal, as well as personal guidance.

I recommend: Wachovia, Regions, Bank of America, among others, provide access to decision-making tools and articles that can help you sort out options in advance.

Price a national name

Mutual funds sellers have begun to work the small business vineyard too. Don't assume that you don't have enough employees to qualify. Big-name operations run retail branches across the country and most are anxious to roll up small and medium-sized business before the banks get the customers.

I recommend: Some to consider are Fidelity, Vanguard and Charles Schwab.

Talk to your tax preparer

The government dangles plenty of carrots to both you and your employees to take part in some kind of retirement plan. They know full well that destitute retirees will fall to future taxpayers, so take advantage of the upside offered now.

I recommend: SmartMoney.com has a good overview of the tax impacts of each kind of plan offered to small businesses.