The SBA's Tips for Choosing a Benefits Program

1. What do you want to offer your employees?

What are the specific needs of your employees, such as child care, health and dental coverage, or a pension plan? How extensive will coverage be and what eligibility requirements will apply? Will employees contribute to the plan or will you pay for the entire package?

2. How much can you afford to spend on employee benefits?

In addition to the price of the benefit package, you must estimate:

• Start-up costs
• Implementation costs
• Ongoing administrative expenses
• Additional bookkeeping and tax preparation expenses
• Fees for professional tax and legal counsel.

These costs will be affected by plan design, management, and the business's administrative practices.

3. Does the plan provide tax advantages?

Will you or your employees benefit from any tax advantages? Are there similar plans with greater tax advantages you should consider? Will you be able to adapt to future changes in the tax code?

4. Is the plan legal?

In 1974, the Employee Retirement Security Act (ERISA) required employers who provide pension plans to meet certain minimum standards. From 1981 to 1986, five major tax laws further specified the legal requirements for providing retirement benefits to employees. The Tax Reform Act of 1986 included new "non-discrimination" rules on health and life insurance plans governed by Section 89 of the IRS Code. In November 1989, these changes to Section 89 were repealed because of the great burden it would have placed on employers to prove their benefit plan did not discriminate.