Researchers estimate that most Americans will require between 70 and 90 percent of their preretirement income in retirement to maintain their current standard of living, according to the U.S. Department of Labor. Businesses can help ensure that employees have ample savings when it is time to retire by working with a retirement plan consulting service and providing their workers with retirement plan options.
Choosing the right retirement plan for employees can be challenging as every business has its own unique needs and financial constraints. There are a number of retirement programs that offer tax advantages to both employees and employers. Offering an attractive retirement plan can also help employers attract and retain quality employees. Nearly any type of business can obtain a retirement plan, including partnerships, sole proprietors, S corporations, LLPs, LLCs, and C corporations. When comparing retirement plan solutions for a small business, there are several factors to consider.
Choosing an Effective Retirement Plan
Retirement plans can be an excellent employee benefit. However, retirement plans can differ significantly and not all are suitable for every business. When choosing a retirement plan, it is important for employers to closely analyze the company’s financial situation and compare their options. It is also a good idea to get an expert’s opinion to ensure that there are no details being overlooked. When choosing a retirement plan, consider the following aspects:
Consider the Size of Your Company
The size of a business plays a direct role in what retirement plans are most suitable for employees. As the company continues to grow, the number of retirement plan options tends to shrink. For example, a for-profit business that has more than 10 to 15 employees may want to choose between a 401(k) and simple IRA, as both of these accounts allow business owners to contribute to their own retirement while also providing attractive benefits to employees. Also, consider the number of employees that are actually interested in participating in the company’s retirement plan and gauge how much they are willing to contribute.
Choose an Attractive Plan
Certain types of retirement plans are more likely to attract talent than others. First, consider an employer match. While contributing to employees’ retirement plans is an added cost, employer match programs are highly appealing to job candidates. Another feature to consider providing employees includes investment tools and advice. Not every employee will be an expert in investing and saving. By providing employees with access to a third-party advisor, employees can make more confident decisions about their investments and will show that management cares about their retirement goals. Some of the most common retirement plan options include:
- 401(k) Plan – This is one of the most common employer-sponsored retirement plans commonly offered by for-profit businesses. The employee picks which investments in the 401(k) to put his or her funds into.
- Roth 401(k) Plan – A Roth 401(k) is funded with after-tax dollars up to a certain contribution limit.
- Defined Benefit Pension Plan – With this traditional retirement plan, the employee receives a fixed monthly benefit at retirement.
- 403(b) Plan – A 401(b) plan is nearly identical to a 401(k) plan but is designed for nonprofit organizations.
- 457 Plan – A 457 plan is also very similar to a 401(k) plan but is designed for local and state government employees.
- SIMPLE Plan – A Savings Incentive Match Plan for Employees (SIMPLE) plan is often offered by smaller employees and requires employees to make tax-deductible contributions.
- SEP Plan – A Simplified Employee Pension (SEP) plan provides businesses with a simplified method of contributing to employees’ retirement.
Base It On the Number of Employees
Some retirement plans can prove too costly depending on the number of employees that a business has participating in the program. It is important to remember that not all employees may be eligible to participate, so keep this in mind when calculating the estimated cost of a plan. Also, consider the minimum and maximum contribution limits for employees and employers. Employee turnover is another important factor when choosing a retirement plan for a small business. If a business experiences a high rate of employee turnover, it is critical to give special consideration to the vesting period of the plan.
Work with the Retirement Plan Consulting Professionals
Choosing the best retirement plan for a business is no easy feat. Fortunately, retirement plan consulting services are available to business owners who need assistance in selecting a plan that is suitable for their business size, industry, and budget. A retirement plan consultant can provide the guidance and resources needed to make an informed decision.
Employee retirement plans are available in many different forms and can benefit both employers, employees, and the business as a whole. For more information on how to choose the proper retirement plan or to speak with an experienced retirement plan consultant, reach out to the experts at BenefitCorp.