An effective way to attract and retain good quality employees in your business is to offer them a retirement plan. Nearly four in five employees prefer new or additional benefits such as healthcare insurance, a 401(k) plan, retirement plan and/or pension, performance bonus, vacation to a pay increase. Retention of employees is important to save costs, boost productivity and build customer confidence.
Why Go for a Retirement Plan?
Although a small business does not need to have a retirement plan, it is recommended if they wish to have a happy and satisfied employee base. Another advantage of having a retirement plan is that your business becomes entitled to a variety of tax incentives. Businesses subject to their eligibility can claim tax credits for the cost of creating a SEP, Simple IRA or a qualified plan like a 401(K) Plan for retirement. Choosing the right plan is important to reap the benefits without putting an excessive financial burden on your business.
How to Choose the Right Retirement Plan?
Choosing a retirement plan for your business involves exploring the various available options and finalizing the one that aligns with the needs and ethics of your business. Taking expert advice is important to calculate and analyze statistics to evaluate the options available and choose the best one.
Experts can help you understand the financial implications of various types of retirement plans and help you choose or design an option that fits in well with your goals and objectives. You need to be clear about:
- Whether you expect your employees to participate in the plan
- Whether you are willing to make an employer contribution
- Your objective is to recruit and retain employees or avoid payroll taxes or both.
Businesses can choose to have:
- Defined Contribution Plans – These plans involve contribution by both the employers and the employees, sometimes at a set rate.
- Defined Benefit Plans – These plans promise a specified benefit at retirement which is based on a set percentage of the pay multiplied by the no of years of working.
- 401(K) Plans – Highly popular among small businesses, these plans allow employees to defer a portion of their salary. These deferrals are generally made on a pre-tax basis but sometimes may give a choice of an after-tax basis. Employers can also choose to match the employee contributions with their contributions.
The complexity and nuances of these plans can vary and should be decided in coordination with the actuary experts who help you understand the pros and cons and develop a customized retirement plan.