The Big Easy

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"Once the money goes into the employees' accounts, the company's obligations are over," says Buckingham. "It's up to the employees to decide how they want to invest the money in their accounts from a list of choices offered by the brokerage house, to which they pay the annual administrative fees. The brokerage house is contracted to administer the plan and handle whatever paperwork exists."

Employers aren't even required to fill out a separate tax form, the way they have to with a profit-sharing plan. All they report is a line-item deduction for SEP contributions on their tax returns.

Buckingham evaluated the plans offered by several local brokerage firms according to several factors: administrative and custodial fees (he didn't want his employees to get socked with excessive charges), breadth of investment options, and backup services.

Ultimately, he chose Merrill Lynch's model. Its fees were competitive, ranging from a minimum of $35 a year to a maximum of $100 a year, pegged according to the asset size of each account. The plan permitted his employees to diversify their accounts by selecting from virtually every investment Merrill Lynch brokers can offer, with the exception of ultrarisky commodities and precious metals. In addition, the brokerage house agreed to run annual workshops to explain the program to Buckingham's employees as they became eligible for coverage.

"That meant all I'd have to worry about each year was figuring out how much I wanted to contribute," says Buckingham, "and then write the checks."

To make certain the SEP never becomes a financial burden on the company, he waits until year-end results are in before fixing his contribution level. All contributions must be made by the corporate federal income tax filing deadline, including extensions, for the previous year.

"To date, we've been able to make the maximum contribution level of 15%, which added up to $59,996 last year. But I tell my employees that as we add staffers or continue to expand regionally, there may be years when we can't meet that level," he says. The company's tax savings for 1989 -- what Buckingham calls the SEP's "added incentive" -- amounted to $17,885.

Buckingham is convinced that the SEP has been a major ingredient in Buckingham Computer's successful growth strategy. "It's helped us retain our employees because it shows them that we're conscientious about satisfying their needs," he says. "And you can bet we play this up as a big benefit when we're interviewing a job candidate we really want to hire."

RESOURCES

Simplified information

If you are looking for some good sources of information about SEPs, here are a few:

* "Simplified Employee Pensions (SEPs): What Small Businesses Need to Know" is a short but comprehensive brochure that is published by the Department of Labor and the Small Business Administration. To order, send $1 for GPO stock number 045-000-00256-0 to Superintendent of Documents, U.S. Government Printing Office, Washington DC 20402.

* "IRS Publication 590" offers further details, with an emphasis on tax issues. It can be ordered from the Internal Revenue Service at no charge by calling (800) TAX-FORM.

* "IRS Form 5305-SEP" illustrates a model SEP program. It also can be ordered from the IRS at no charge by calling (800) TAX-FORM.

A SEP CHECKLIST

Is the plan right for you?

SEP plans offer tremendous advantages for growing businesses. But because of their standardized nature and other features, they don't necessarily make sense for every company. Here is a checklist that will help you decide if they're right for you:

* Is your employee base small? If you have fewer than 100 employees and a simple list of requirements, a SEP would probably be a perfect fit for your company. For larger companies it pays to check out other plans, since overall administrative costs may be lower with, say, a 401(k) plan.

* Do you employ a lot of part-time workers or summer help? If so, a SEP may be unnecessarily costly, since you'll have to include any employee who has earned at least $342 a year from your company for three of the past five years. You might want to consider setting up a profit-sharing plan instead, since its threshold for inclusion is 1,000 hours of service within a year.

* Need to minimize corporate expenditures? Then a 401(k) plan might make better sense for your company, since employees will be able to save their own funds for retirement while earning tax benefits. And you'll be able to limit corporate matching contributions as long as necessary.

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