First, determine whether or not an ERSA plan is worthwhile. There may be nonmonetary reasons, such as employee retention, that motivate an employer to establish or continue an employer-sponsored plan. Employers who are able to save more than $15,000 per year may want to use an ERSA plan in addition to their LSA and RSA if the costs of funding employee accounts under the safe-harbor rules are not prohibitive.
Second, examine using LSAs and RSAs exclusively. If the individual plans are sufficient, and there is a desire to help employees fund retirement, the owner could pay out regular bonuses and allow employees to fund their own LSAs/RSAs in lieu of a company-sponsored plan. In the case of very small plans with high embedded expenses, low-paid employees might actually benefit from such a shift.
Third, small-business owners can investigate cross-tested cash balance plans, which often offer owners the opportunity to contribute substantial sums as a low staff cost.
Joel P. Bruckenstein, CFP, is co-author of the book Virtual Office Tools for the High-Margin Practice: How Client-Centered Financial Advisers Can Cut Paperwork, Overhead, and Wasted Hours.