4 Benefits of Offering A Retirement Plan To Your Employees

Inevitably, all workers must retire. It’s both relieving and frightening for many. After all, retiring also means relying on their pension. Some people might even have poor planning and find themselves in dire straits after retirement. Employees need all the help they can get.

That’s where you come in. As the employer, you have the power to help them with their retirement plans. Still, some people might be thinking “what’s in it for the business?”. Yes, it’s true, on the surface, offering a retirement plan seems like extra effort to help employees leave.

But as these benefits will soon show you, offering a retirement plan does your business good, not bad.

Retains Top Talent

It is crucial to invest in your employees. They are the people who keep your business going. Investing means trusting your employees to stay with you for the long haul. Offering a retirement plan is one of the most enticing ways to keep your employees with you. While most employees don’t actively think of retirement, it’s always at the back of their minds.

As they grow older, that’s when they start questioning their position in the company. A good retirement plan is one of the best ways to ensure they don’t leave you. Many employees value convenience and empathy from their employers. A retirement plan offers both those things and that makes it way more likely to stay. Indirectly, it also curbs employee training costs. After all, no need for new, unnecessary employees if your top talent stays with you.

Diversifies Your Assets

Another benefit to the business is it also helps your retirement plan get set up. Many view their business as their biggest asset. However, with a retirement plan, you get to focus on your business without the added stress of relying on it once you retire. It becomes a bonus source of income, not your entire retirement plan. 

By extension, that lets you take more risks with the business without much pressure. Risks are an inherent cost of expanding your business. Removing the mental block of “this is all I have” allows your business to reach its true potential. A diverse portfolio means that even if your business falters at times, the growth in others keeps you above water.

Flexible Plan Options

Contrary to popular belief, even small businesses have a lot of flexibility with what retirement plans they can offer. Modern providers have since made these plans much more affordable and understandable to small business owners. Some of these plans include:

Simplified Employee Pension Plans 

This plan entails the employer making all of the contributions for all their employees. As of 2022, the contribution limit is either $61,000 or 25% of the employee’s net income. SEP-IRA plans do not overlap with privatized IRA plans, so employees have the freedom to continue their contributions to any existing retirement plans. This is popular with small businesses as the costs are low and the paperwork is minimal.

401(k)

401(k) plans are likely what most businesses are familiar with. The investments for these are tax-deferred. The main advantage of a traditional 401(k) is the tax advantages for the business. SIMPLE 401(k)s are even more advantageous to smaller businesses. With this plan, employees are vested immediately, and employers have a lot less paperwork to deal with. 

They are similar to SIMPLE-IRAs, but with the added benefit of employees having more options with their accounts. Of course, there’s a bit more paperwork involved than SIMPLE-IRAs, and finding a provider with this plan could prove difficult.

Defined 

Defined plans come in two types, benefits and contributions. Under a benefits plan, the employer assumes all risks and paperwork for the employee. It also has fixed benefits depending on annual salary and tenure. However, these plans are complex and require an enrolled actuary capable of filing Form 5500. In contrast, defined contribution is a lot more flexible, but also riskier as a result.

With a defined contribution plan, employees have full control over what plans, investments, and contributions they want. Therefore, flexibility is the only consistent benefit here. However, the potential is quite a lot larger than the benefits. For example, being able to withdraw or transfer mostly unhindered, people can adjust to what’s best for them if they do the proper research. 

Tax Benefits

As many financial advisors will tell you, offering retirement benefits could mean tax savings in the long run. Small businesses with 100 or fewer employees are eligible for federal tax credits. If an employer matches their contribution, your share is deducted from the combined contribution limit typically set for each employee.  Taxes are also deferred in certain plans, which significantly increases compensation in the long term.

Conclusion

Retirement plans may seem like a hassle, but they are well worth the effort. The options allow both the employer and employee to reap some solid tax benefits. In addition, the employer is far more likely to hold the loyalty of their employees. To learn more about loans and taxes related to your business, check out our blog here!

Guest post by Author Sophia Young