Question

In: Finance

.       Larry Kraft owns a restaurant that is open 7 days a week. He has 25...

.       Larry Kraft owns a restaurant that is open 7 days a week. He has 25 full-time employees, but he has fairly high employee turnover. He believes that he can stabilize his workforce if he has a pension plan for his employees. Larry hears about a small business retirement plan called the SIMPLE IRA.   

a) What are the qualifications and limitations for him to establish this plan?

b) What is another type of plan that he could offer and how would that work?

c)What are the pros and cons of the SIMPLE IRA vs the other plan you discussed?

Solutions

Expert Solution

a. In order to establish this plan Larry Kroft will have to meet the following qualifications and requirements:

i. He should have 100 or less than 100 employees and the employees should have earned a minimum of $5000 during the last year (i.e. the year preceding the year in which application was given).

ii. No other plans are maintained by Larry Kroft for his employees.

In terms of limitations Larry Kroft will not be able to employ more than 100 people at his restaurant, if and when he expands in future. Secondly Larry will not be able to maintain any other plans for his employees.

b. Another type of plan that he could offer is SEP IRAs. SEP stands for simplified employee pension. SEP IRA is a retirement plan that Larry Kroft can establish for his employees. Larry Kroft will be eligible to establish SEP IRAs for those employees who have attained 21 years of age, worked in the restaurant for at least 3 of the last 5 years and has received at least $600 as compensation.

c. Pros:

A simple IRA does not require 100% employee inclusion as is the case with SEP IRAs. Secondly a simple IRA does not limit the employer’s ability to make large contributions as is the case with SEP IRAs due to the stipulation that in case of SEP IRA each employee must receive the same contribution as a percentage of salary.

Cons:

One of the biggest drawbacks of Simple IRA is that there are employee limitations. The restaurant cannot expand beyond 100 employees in case of Simple IRA. There is no such restriction in case of SEP IRA.


Related Solutions

A Restaurant is open only for 25 days in a month. Expenses for the restaurant include...
A Restaurant is open only for 25 days in a month. Expenses for the restaurant include raw material for each sandwich at $6.00 per slice, $1,004.00 as monthly rental and $470.00 monthly as insurance. They consider the cost of lost sales as $5.00 per item. They are able to sell any leftover sandwiches for $3. They prepares 200.00 sandwiches and sells them at a rate of $12.00/sandwich. Today there was a party at nearby office so the demand for sandwiches...
A Restaurant is open only for 25 days in a month. Expenses for the restaurant include...
A Restaurant is open only for 25 days in a month. Expenses for the restaurant include raw material for each sandwich at $6.00 per slice, $1,004.00 as monthly rental and $470.00 monthly as insurance. They consider the cost of lost sales as $5.00 per item. They are able to sell any leftover sandwiches for $3. They prepares 200.00 sandwiches and sells them at a rate of $12.00/sandwich. Today there was a party at nearby office so the demand for sandwiches...
A Restaurant is open only for 25 days in a month. Expenses for the restaurant include...
A Restaurant is open only for 25 days in a month. Expenses for the restaurant include raw material for each sandwich at $5.00 per slice, $1,209.00 as monthly rental and $210.00 monthly as insurance. They consider the cost of lost sales as $6.00 per item. They are able to sell any leftover sandwiches for $3. They prepares 200.00 sandwiches and sells them at a rate of $13.00/sandwich. Today there was a party at nearby office so the demand for sandwiches...
Store is open 7 days/week. orders units every other week. maintains safety stock of 120 units....
Store is open 7 days/week. orders units every other week. maintains safety stock of 120 units. weekly sales is 800 units. lead time is 3 days. current inventory is 350 units, how many units should it order?
QUESTION 2 [9 marks] The Amalgamated Parcel Service is open 7 days a week. The schedule...
QUESTION 2 [9 marks] The Amalgamated Parcel Service is open 7 days a week. The schedule of requirements is as follows: Monday Tuesday Wednesday Thursday Friday Saturday Sunday 6 3 5 3 7 2 3 Requirements The Manager needs a workforce schedule that provides each employee with TWO consecutive daysoff per week and minimizes the total amount of slack capacity. a. Prepare and present a work schedule highlighting the days off. b. Indicate the total number of workers that the...
A grocery store is open 24 hours a day, seven days a week. It has the...
A grocery store is open 24 hours a day, seven days a week. It has the following daily requirements for cashiers: Time                             Minimum # of cashiers 0100 – 0400                              7 0400 – 0700                              4 0700 – 1000                              9 1000 – 1300                              12 1300 – 1600                              15 1600 – 1900                              17 1900 – 2200 19 2200 – 0100                              13 A cashier may start work at the beginning of any one of the shifts and, having begun, works 9 consecutive hours. Each...
A restaurant is open everyday. For a given week, the total sales on weekdays are approximately...
A restaurant is open everyday. For a given week, the total sales on weekdays are approximately normal with a mean of $10000 and a standard deviation of $2500. On the weekends, the total sales are approxi- mately normal with a mean of $7000 and a standard deviation of $1400. The rent costs $2500 weekly, labor costs $4500 weekly, food costs $4500 weekly, and other expenses amount to $2500 weekly. Our goal is to find out in any given week, what...
Jonathan Lark’s lifelong dream is to own a restaurant. He owns a premium site for a...
Jonathan Lark’s lifelong dream is to own a restaurant. He owns a premium site for a restaurant across the street from the local university. Now he needs to decide what kind of restaurant to open. Recently, Jonathan began to investigate one of the fastest-growing fast-food franchises in the country, Pepper Roni Pizza. A Pepper Roni Pizza franchise costs $40,000, an amount that is amortized over 15 years. As a franchisee, Jonathan would need to adhere to the company’s building specifications....
Jose decides to open a restaurant. After analyzing costs and forecasting revenue he realizes he can...
Jose decides to open a restaurant. After analyzing costs and forecasting revenue he realizes he can earn about a 14% return on his investment. What factors must Jose think about in making his decision? Justin has saved 50,000. He can invest it in a real estate venture that will pay 15% for 10 years, and then in a mutual fund for an additional 10 years at a 9.75 annual return. He’s hoping that in 20 years, when he is 40,...
You eat five days per week at the same restaurant, and every day you order a...
You eat five days per week at the same restaurant, and every day you order a sandwich and a drink. There are 26 sandwiches including 6 vegetarian options, and 15 drinks including 4 caffeine-free drinks. On Tuesdays, you like to eat healthy, so you always choose a vegetarian sandwich and a caffeine free drink on Tuesdays. The other days you can eat any sandwich and drink any drink - but you never repeat a sandwich or a drink in the...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT