Is it worth it for small businesses to sponsor retirement plans? From many different vantage points, the answer is most likely: yes. Putting workers on the path to a secure retirement is a wonderful way for business owners to make a difference. Plus, there are advantages for the business too, including attracting and retaining employees and tax incentives. Read on for a snapshot of the benefits of retirement plan sponsorship, as well as tips on managing the risks associated with the high standards of the Employee Retirement Security Act (ERISA).
Retirement Plans: Benefits for Everyone
Noting that small business owners generally have many retirement plan options to choose from based on the size of their organizations, ADP summarizes these benefits of retirement plan sponsorship:
401(k) plans for small businesses can be a powerful tool to help employers promote financial security and attract and retain talent. Additional benefits include tax-advantaged contributions and the ability for all employees, owners and managers to participate. There are advantages for employees, too. 401(k) plans offer them flexible contributions and investment options, tax-free contributions and earnings, and often portability if they leave the company.
Some analysts go so far as saying “The benefits package you offer may make or break your company when it comes to hiring and retaining employees,” underscoring the importance of a 401(k) for employee attraction and retention, and observing: “Offering a retirement savings vehicle for current and future employees to save in could go a long way in easing their financial anxieties—which, in turn, may make them more productive and boost your bottom line.” Of course, small business owners also need a path to secure retirement for themselves, and, as Acensus explains:
As a business owner, you need to be able to set aside some retirement savings too—and one of the best ways to do that is in a tax-advantaged account like a 401(k) plan. Not only do 401(k) plans have a higher contribution limit than other retirement plan options such as an IRA and SIMPLE IRA, but they’re also flexible enough to fit with your company’s needs and goals. Have a high number of Highly Compensated Employees (HCEs) at your business, for example? Many 401(k) plans also offer safe harbor options to help small businesses pass non-discrimination testing; you’ll just want to make sure the plan is in place prior to safe harbor deadlines for the year.
Despite the many benefits of offering retirement plans, many small businesses with less than 100 employees continue not to sponsor plans. Pointing out that owners are often unaware of the options, and worried about the potential risks and burdens associated with ERISA plans, Pew Charitable Trusts reports:
More than 40% of small-business employers don’t offer retirement benefits, in part because offering a plan costs employers money and often involves consulting with financial professionals to administer and manage plan investments. And retirement plans can involve risk for employees as well: High plan fees can cut into the employee’s account balance at retirement, while costly or inappropriate investment choices can reduce returns and limit overall savings…..But small businesses often overestimate the financial costs and administrative burdens of offering a plan. While cost-effective retirement plans are available in the marketplace, small employers are often not aware of less expensive providers or options.
Good To Know: Shifting Dynamics
Trends toward both living and working longer are shifting traditional thinking about retirement and benefits. For example, an AARP analysis of data from the Bureau of Labor Statistics revealed this bottom line for businesses: “The only segment of the workforce by age that is growing over the next decade is workers who are 75 and older….” Further evidence of older employees remaining active in the workforce comes from Pew Charitable Trusts, which points out: “Currently 62% of workers 65 and older are working full-time, compared to 47% in 1987.”
As competing for older employees becomes a reality, businesses will likely need new benefits packages to address both longevity and retirement planning. Win-win arrangements for employers and older workers could start to look like this:
Employers that want to recruit and retain older workers, many of whom may want to work less than full-time or may be willing to accept lower compensation, may need to consider offering more benefits to part-time employees, providing flexible work hours and appealing to older workers by trading off slightly lower compensation for enhanced benefits….“For instance, the older worker might be looking less for cash income and maybe more for benefits….[Plan sponsors may] make a trade off saying, ‘hey, we got you covered for dental or we got you covered for additional medical but that’s going to be a little less cash in your pocket’ and [older workers] may be good with that because they’ve just retired [from full-time employment], perhaps with a full 401(k) or pension plan.”
Assistance For Plan Sponsors
As a sponsor, you make a difference in the lives of employees–and their beneficiaries, but that entails navigating the complexities of ERISA. Unforeseen challenges arise all the time, and seemingly small oversights can trigger costly legal actions that put the personal assets of ERISA plan sponsors at risk. Even if nothing has been done wrong, the average ERISA claim costs businesses over $1.2 million in legal fees.
That’s where Colonial Surety comes in. When you’re armed with our cost-efficient Fiduciary+ Cyber Liability Insurance, you’ll have:
- Up to $1,000,000 for Defense and Penalties: If faced with alleged or actual breaches of duty in connection with the employee retirement plan, you’ll be defended, and your assets protected.
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Trust Us: as fellow plan sponsors, we understand the challenges and risks firsthand. That’s why we created this protection package specifically for you. Get protected now—–just click this link for a fast, free quote:
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