No matter how many books, computers, or airplanes our schools have, we know the most valuable resource we have is our employees. Whether you have just one CFI or a roster complete with dispatchers, office managers, and mechanics, the right staff is typically the key to any company’s competitive edge, so attracting and retaining the best and the brightest is a key issue for business success.
One area where small schools typically fail in attracting and retaining those truly outstanding employees is through benefits packages. In addition to insurance, retirement plans are becoming more attractive, especially now that your employees will be spending more of their working years with you. Yet, according to the Small Business Administration’s Office of Advocacy, almost 72 percent of workers in small businesses have no retirement plan available through their company.
Most of the CFIs we typically employ are young and not yet thinking about retirement; however, a conversation with your employees to help them understand that these programs are a form of deferred compensation with real value can help them see that retirement is not a magic entitlement that materializes out of thin air. Make sure they understand that retirement plans are much like a forced savings plan or a sealed piggy bank, and that taking less today will ensure they’ll be more secure tomorrow.
As a small business, a Simplified Employee Pension (SEP) is one way for your school to set up a qualified retirement plan for employees, even if the only employee is you. A SEP can be an attractive choice for a self-employed individual as well as a business with employees because enrolled employees get to choose how their contributions are invested. SEP contributions are tax deductible for the company, not taxable to the employees and grow tax-deferred until withdrawals are made in retirement years.
A basic SEP plan allows you to make tax-favored contributions to an individual retirement annuity, or SEP-IRA. The SEP-IRA is subject to the same IRS rules as a traditional IRA, and it isn’t necessary to obtain approval from the IRS before you establish one. While some may feel more comfortable contacting a retirement planner to help them with the plan, setting up a SEP can be simple:
All SEP contributions must be made by you, the employer. When SEP contributions are made, you must make contributions at the same percentage of salary for all eligible employees. Also, employees who are 21 or older and worked for your school at least three of the last five years must be included in the plan. The individual employees can decide how the contributions are allocated among the mutual funds offered in the SEP-IRA accounts.
SEP contributions are maxed at 25 percent of an employee’s salary with a cap of $50,000 for 2012. Contributions must be made by the company's tax filing date.
If you are a sole proprietor with no employees, a SEP retirement plan has several advantages since there are low set-up costs, and high and flexible contribution limits. Filing income taxes as a sole proprietor will be limited and the SEP contributions are 100-percent tax deductible to a sole proprietor. For more information concerning the IRS regulations, see IRS Publication 560.