3 Things Every Small Business Owner Needs to Know About Employee Retirement

Author: / 22 Jan 2020 / Business

Two small business women smiling at a table, discussing employee retirement

Small businesses have a big retirement problem.

According to the Bureau of Labor Statistics, at companies with fewer than 50 workers less than half the employees have access to a 401(k) or pension. Compare this against companies with 500 workers or more, 90 percent of employees have access to a retirement plan.

We understand that setting up an employee retirement plan can seem daunting for small business owners—if not impossible. But with pensions disappearing and the social security system growing less reliable, offering a savings vehicle for your team is more important than ever before.

Let’s clear up some misconceptions and review a few of the many reasons why offering an employer-sponsored retirement account is a great idea for small businesses of all types.

Investing in Your Employees Creates An Invested Team

How badly does your team want retirement? According to a 2015 Glassdoor survey, 31 percent of workers valued a workplace retirement account, such as a 401(k) or pension plan, over an increase in pay.

Even your team members who would prefer a wage pump want help preparing for the future. The Employment Benefit Research Institute found that two-thirds of employed workers not currently saving for retirement say they would be likely to start if automatic paycheck deductions ranging from three to siz percent were used by their employer.

If you aren’t providing a retirement benefit, it’s not just your current employees that notice. Offering a retirement plan, especially one with matching, allows small businesses to stay competitive in the hiring market against their larger counterparts.

How much will you pay for 401(k)? Get an instant quote.

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Low-Cost, Low-Hassle Plans

There’s a toxic myth floating around that retirement plans have to be clunky, expensive, and require an annual 1.5-2% fee to a provider. That’s a misconception!

Big business 401(k) plans are designed for businesses with hundreds or thousands of employees. Because they are more complex, they often require in-person enrollment meetings and special human resources training. Those large plans typically do have high fees—including “assets under management,” or AUM fees. AUM fees charge based on a percentage of the money in your account. That means that the more you save, the higher the fees.

Nowadays, there are low-cost defined benefit options, specifically designed for small businesses. (Full disclosure, we think our plans are pretty great. Check them out here)

Besides providing lower costs, choosing a third-party plan provider allows you to delegate certain plan responsibilities to let you focus on what you do best—running your business.

Use Plans to your (Tax) Benefit

Did you know those fees to set up and run a retirement plan may be tax-deductible?

Due to the recently passed SECURE Act, small business owners can claim a credit of up to $5,000 for qualified setup and administration fees, and costs to educate employees about the plan for each of the first three years of the plan.

Combined with this with a new, $500 credit for the first three years of adding auto-enrollment to the plan, small business owners can save up to $16,500 in tax credits. Just keep in mind that whatever plan expenses you use toward this credit, you can’t use as business expense deductions.

In 2017, the Employee Benefit Research Institute found that nearly 73 percent of workers not currently saving for retirement would be at least somewhat likely to start if contributions were matched by their employer. The good news for employers is that the IRS usually allows them to deduct these matches, subject to contribution limits on qualified employee plans (including the employer’s own plan).

Plus, 401(k) plans aren’t just beneficial for your tax savings–they give your employees tax advantages as well. All deferred employer contributions, including earnings and gains, are tax-free for employees until distributed by the small-business retirement plan. This is part of why employer contributions are so valuable.

Bottom Line: Start Saving Today

As a small-business owner, it makes sense to look into offering an employee retirement savings plan. It’s an easy to implement perk that your team will value, is available through lower cost options, and provides tax breaks to both employees and employers. Sponsoring an employee retirement plan attracts and retains the best talent for your business. Showing your employees you have their interests in mind creates a happier, more engaged, and ultimately more successful team.

Learn More:

Download our Definitive Guide to Small Business 401(k)

Take the next step – Let me help you.

Contact Jay Jacob, Sr. Retirement Plan Consultant

Book Time With Me

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Do not sell my info
44 Montgomery Street, Suite 300
San Francisco, CA 94104
Support: 855.401.4357

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© 2023 Ubiquity Retirement + Savings
Privacy Policy
Do not sell my info
44 Montgomery Street, Suite 300
San Francisco, CA 94104
Support: 855.401.4357

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