According to a recent study by SurePayroll, over 70% of small businesses don’t offer their employees a 401K plan. Many cite prohibitive administration costs, overhead and fees as the reason why.
If you’re a small businesses owner, you may be among this 70%. Although you might want to offer your employees a 401K plan, you’re not sure you can afford it.
We’re here to tell you that you can. In fact, it may actually be in your best interests to do so. Here’s the scoop:
Why Offer a Great Plan?
A great plan can help attract top-notch employees. After health care coverage, employee-sponsored retirement plans are the second-most-valued benefit that attracts workers to small businesses—and keeps them happy and loyal once they’re there.
You also get to participate in the plan, which can help your own retirement planning goals are you’re able to put away more money into a 401K than you would into an IRA. Business owners can contribute up to $17,500 a year to their 401K, and that number jumps to $23,500 once you hit 50. Compare that to an IRA, whose limits are either $5,500 or $6,500 if you’re 50+.
Still not convinced? You can also save when tax time comes around. You can get a tax credit of up to 50% off the costs of starting a 401K plan, plus up to $500 a year for the first three years the plan is in existence. Employee contributions are deducted pre-tax, and employers are legally allowed to reduce employee salary in order to make these contributions and to raise the amount of employee contributions without employee approval. You’re also not required to provide employer matches (although many companies do in order to sweeten the pot for their workers).
Finally, the administrative costs aren’t as prohibitive as you might think. Plan management has come a long way, and streamlined processes, web-based platforms and plan bundling can drastically reduce your costs (and the amount of time you spend on paperwork).
How to Keep Costs Down
Depending on the size and needs of your company, you have many options when it comes to which arrangement is the best for you.
Your individual plan management costs will vary depending on both your investment decisions and your plan manager. Some plans charge a flat fee, while others charge a certain percentage of the funds in the plan (anywhere from 0.25% – 3%).
You’ll need to decide which arrangement is the most attractive to you, both in terms of your own cost as an employer and what will be the most attractive to your employees. If you choose a flat fee plan that charges a certain amount per employee, for instance, it may turn off new participants who resent paying the same amount as other employees who’ve been in the plan for years. Look for low-cost options, such as an online investment advisor, which tends to be cheaper because they don’t have the brick-and-mortar overhead.
You’ll also want to consider how much help you’ll need when you first roll out your 401K plan. A smaller-scale financial advisor may cost you more than going with a large company, but he can help you educate employees on the plan and give you investment advice better (where a large company might just provide you with a 1-800 customer service line).
In the End
Offering your employees a quality 401K plan is not beyond your means and actually makes lots of solid business sense, both for your company and for your own personal retirement goals.
Do your research, take the time to educate yourself on the options that are available to you, and compare the costs and features of different plans. Your employees will thank you, and so will your bottom line.
Use Jemstep to help you offer robust 401k guidance to your employees.