According to a recent industry survey, more than 60% of small business owners are not saving enough money for their own retirements. If the employer is not saving the right amount, it is logical to suspect that the employees likewise are failing to save appropriately. However, starting a 401(k) plan at a small business can have wonderful benefits for employees and employers alike. The process is relatively straightforward these days and consists of just a few basic steps.
Start by engaging an experienced plan consultant or advisor and allow this group to guide you through the process. A good advisor will make recommendations for an appropriate service provider to meet your needs (including a recordkeeper and administrator). Once the plan is up and running it will be up to you and your advisor to encourage the employees to enroll and take advantage of the benefits that are being offered. While that is a simplified order of operations, each step has some nuances, and certain complications could arise. However, everything is manageable and there has never been a better time to start a 401(k).
Small business owners may perceive 401(k)s as difficult to deal with and not worth the effort with a small workforce. There may have been some truth to this in the past; however, there are some compelling reasons a small business should consider offering a 401(k).
First, as an employer, you are to be able to offer something (other than normal compensation) for the employees. Offering employees benefits is a good way to ensure they remain happy at their current job, remain loyal, and will motivate them to make sure that the business succeeds. Businesses that offer retirement plans may lead to higher worker satisfaction and lower turnover rates.
Second, 401(k) plans offered at small businesses can create tax benefits. All the money that the employer and employees contribute is tax sheltered until retirement. This means that the employees are able to contribute money into their accounts before taxes are withdrawn from their paychecks. Also, small businesses can receive a tax deduction for contributions to employees’ accounts inside the 401(k). Additionally, if a business is new and has at least one employee it can receive a $500/year tax credit for the first three years, if the company offers a 401(k).
Lastly, technology is making saving for retirement easier than it has ever been. You can now see and track all the money that you save for retirement with just a few clicks. Even though the process has been simplified, it could still be difficult for someone who might not be as knowledgeable about the steps or has limited resources. That is why many small businesses choose to outsource their 401(k) plans to a financial services company. At Duncan Williams Asset Management, we focus on helping our clients choose, implement and manage an appropriate plan for their business model.