Retirement planning just got simpler for restaurateurs and other small business owners. At least that's what the federal government implies by naming Subtitle D of the "Small Business Job Protection Act" Pension Simplification (P.L. 104-188, 8/20/96). But don't be fooled by semantics -- much thought and care still need to go into determining the type of retirement program that best suits your business.

First of all, not all of the changes included in the Act are really intended to simplify things for the individual. The three-year suspension (1997, 1998, 1999) of the excise tax on excess distributions, for example, is actually a revenue-raiser for the government. Although the suspension allows individuals to take out substantial sums from their plans without incurring the excise tax, it encourages larger taxable distributions from qualified plans from 1997 through 1999. The suspension is not beneficial for everyone, and a restaurateur would be wise to consult a professional pension advising business -- such as Integrated Payroll Pension and Benefits, Inc. -- to determine whether it might pay to withdraw large sums during the suspension period.

While the SIMPLE retirement plan can take the form of an IRA (replacing the SARSEP) or one that follows the old 401K rules, most restaurateurs would be better off choosing the latter. Even though the IRA plan costs less than the 401K, you can lose your assets from the plan if you are sued as an individual subject to creditors' attack. With the 401K plan, you are paying more at the outset, but assets are not subject to creditors (just as Social Security assets cannot be taken from you). There is also an advantage to a 401K type of plan from the employee's perspective, since employees cannot borrow from IRA plans, whereas they can borrow from a 401K.

Another aspect of the SIMPLE retirement plan that may not be right for everyone is a $6,000 indexed cap for SIMPLE plans compared to the $9,500 indexed cap for traditional 401K plans. Again, a pension expert can best calculate how much various choices will cost. Most plans are sold by insurance agents or brokerage firms, but only specialists in the tax field can determine whether a plan that seems simple at the outset will prove to be more economical for your business in the long run.

But whether or not a SIMPLE plan is right for you, you should be making arrangements to begin some sort of retirement plan for your full- and even part-time employees if you are not already providing them with this benefit.

Many restaurant owners have shied away from retirement plans because of the cost. It's important to note, however, that your financial outlay is likely to be overshadowed by the loyalty and long-term employment you incur among your employees by establishing such a plan for them.

National studies of restaurants have shown that where owners provide benefits of this nature, employee turnover is far lower than where no such benefits exist. When you consider the cost in time and money of training new employees, you begin to realize the kind of long-term savings that you can accrue for your business. You are also more likely to attract and retain higher quality employees by offering retirement benefits, and this will give you a competitive edge in hiring over other restaurants that offer no such benefits.

A case in point is a regional restaurant chain with more than 40 locations, with each location employing more than 100 people. After instituting a modest 20 percent matching 401K plan, employee loyalty and longevity increased substantially. The reduction in employee turnover was especially crucial during peak seasons when extra help was needed. The owner says the 401K cost is substantially less costly than employee turnover costs. That is why it is important to consider providing retirement benefits to your part-time as well as full-time employees. It will help to ensure that a pool of trained, reliable workers will be eager to return to your restaurant whenever you require extra staff. For restaurateurs to follow the general advice of benefits planners to exclude part-time personnel from a plan is counterproductive in an industry that relies so heavily on part-time employees.

A beneficial tax change for retirement plans that is already in effect is the bottom-up QNEC, an acronym for Qualified Non-Elective Contributions. QNEC is based on a calculation that says the owner, or highly compensated employee (HCE), cannot put in more than a certain percentage over what a worker, known as a non-highly compensated employee (non-HCE), can put into a retirement plan. If an owner makes $100K per year and each employee makes $20K per year, and all the employees put in five percent, the owner cannot typically put in over two percent more than their five percent average.

Bottom-up QNEC allows an HCE to increase non-HCE contributions through an adjustment bonus in order to increase his own contribution percentage. Here is how it works. Let's say a very small company had four employees at $20K per year, who were contributing five percent and the owner is only allowed to put in seven percent. Now suppose one of the employees quit after the first week in January, after he had been paid four hundred dollars, twenty of which would go into his plan. As a corporation, the owner could put a hundred dollars into his plan (representing a 25 percent maximum contribution) as a "going away" gift. One employee now has 25 percent in the plan, while the other three employees each have 5 percent. Now, the average for all four employees is 10 percent, so the HCE could put 10 percent of his $100K into his plan, protecting an additional three thousand dollars from income tax for an outlay of only a hundred dollars -- a savings of $1500 for someone who is most likely in the 50 percent tax bracket.

The above is just one example of the substantial opportunities that can benefit small business owners who consult with savvy tax professionals who understand the nature of the restaurant business. While restaurateurs are typically very good at cost analysis with regard to food waste, shrinkage during cooking, inventory, etc., they are less likely to consider the long-term ramifications of a retirement plan in terms of maintaining a reliable, highly skilled staff. One size doesn't fit all, whether you are talking about prime rib or retirement plans. Be sure to consult with a tax professional who can tailor information on the pros and cons of various benefits plans to your business.

For more information on retirement planning through Integrated Payroll Pensions and Benefits, Inc., call (888) 464-7724.