Cost/benefit tradeoffs relating to reductions in postretirement health care benefits in the SFAS 106 environment

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Accounting and Finance


CPAs often advise small business on establishing retirement plans. In many cases, small business owners seek a plan that offers tax-deferred savings, deductible contributions, and the opportunity to provide maximum benefits to the owner in either a corporate or noncorporate entity; however, it can be difficult for small employers to offer retirement benefits that will qualify under the stringent rules for pension or profit-sharing plans. Such plans can be both complex and costly to implement and maintain. The Simple Employee Pension (SEP) plan and the Savings Incentive Match Plan for Employees (Simple) present two low-cost alternatives for small employers. Although the SEP and Simple are similar in design, certain distinguishing factors will make one plan or the other a preferred choice in many circumstances. Financial advisors should review these factors with small business owners when evaluating both plans. Other factors might also play a role in determining an employer's preference for one of these plans.