The decision isn’t necessarily as easy as it seems.
- There are multiple retirement plan options for small businesses, and your company may want to offer one to staff members.
- While a work retirement plan may attract more talent, it involves extra administrative work.
There are many different retirement plans your company could offer, including a 401(k), SEP-IRA, or SIMPLE IRA. But before you decide to make one available to your staff, there are some things you need to consider first.
Could offering a retirement plan help you attract more talent?
In many cases, the ability to attract more talent is one of the biggest reasons why offering a retirement plan can make sense.
Of course, it’s nice to offer this benefit to your employees. And if you also work for the company, then offering a retirement plan for your staff could enable you to more easily make tax-advantaged contributions to your own retirement.
But these may not be sufficient reasons to go through the trouble of offering a plan. The ability to attract more workers, on the other hand, could be justification for offering retirement options. In a tight labor market, it may be hard to hire anyone. And in any labor market, finding skilled workers you can trust is still going to be a challenge.
The more benefits you offer to potential staff members, the more people will be interested in working for your company. And since employees are needed to make your business successful if you can’t do everything yourself, it makes good sense to offer a retirement plan to attract great people to work for you.
Can you handle the administrative responsibilities?
The big downside of offering your own retirement plan is the complexity involved with opening and running a plan. You’ll have to research different plan options, find a plan administrator, and make sure you are complying with all regulations associated with offering a workplace plan.
There’s a huge cost involved in terms of the time spent finding and setting up the right plan. And there’s also a direct financial cost if you have to pay an administrator or pay experts to manage the plan appropriately in compliance with the law.
You need to make sure your company is prepared financially and that you have the knowledge necessary to set up a plan that doesn’t run afoul of IRS rules or other federal and state laws affecting retirement accounts.
Will you offer any plan contributions?
Finally, you have to think about whether your company is going to offer to make any contributions into the plans of staff members.
With many types of tax-advantaged retirement plans, you will have to contribute to an employee’s plan if you want to invest in your own plan. For example, if you want to contribute to your SEP-IRA plan as an employer, you’d also have to contribute to the plans of other eligible employees who work for you.
You may also want to offer contributions as part of your efforts to attract talent. But this means you need to budget for this expense.
You’ll need to consider each of these three issues carefully before moving forward with offering a retirement plan. You don’t want to set up accounts for your employees to save, only to find out that doing so hurts your business in the end.
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