3 Things Every Small Business Owner Needs to Know About Employee Retirement
Dylan Telerski / 11 May 2018 / Business
Small businesses have a big retirement problem. According to the Bureau of Labor Statistics, at companies with fewer than 50 workers the not even half the employees have access to a 401(k) or pension. At companies with 500 workers or more, 90 percent of employees have access to a retirement plan. Setting up an employee retirement plan can seem daunting for small business owners—if not impossible. 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 3 to 6 percent were used by their employer.
By offering a retirement plan, small businesses may be able to attract more talent—and retain the valuable team members they already have.
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! Nowadays, there are low-cost 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? Using Form 881, eligible small-business owners can claim a credit of up to $500 for qualified setup and administration fees, and costs to educate employees about the plan for each of the first three years of the plan. 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).
Remember that all deferred employer contributions, including earnings and gains, are tax-free for employees until distributed by the small-business retirement plan. This is why an employer contribution is 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.