In an infographic published earlier this year by SCORE, they noted that "a retirement savings plans cost employers only 2.4% of an employee’s compensation" AND that
"48% departing employees said a lack of retirement benefits influenced their decision." (See the PDF at the end of this post.)
That says a lot right there about how easy it is to increase worker retention by simply adding a retirement plan. And, that's not the only reason to do so.
Retirement plans for businesses make sense from several different standpoints. For the small business owner, the best plans from which to start are the 401K and the Simple IRA.
A 401K plan basically allows the employees to make contributions into a retirement plan on a tax deferred basis, meaning they don’t have to pay taxes on the money when they make the contribution. They do have to pay taxes when they take money out….when they retire. But it’s a way to reduce their tax liability now.
A 401K also offers very little expense to the employee because you’re buying funds--you’re buying into whatever the mutual fund is--at net asset value which means you don’t pay a sales charge. Otherwise, if the employee were to work directly with an advisor to invest in a mutual fund, he would be paying anywhere between 3 - 6% for every dollar put in as sales charge.
Another benefit is matching contributions from the employer. Although not mandatory, the employer can set what he wants to contribute to the plan. Usually it is a percentage of the employee’s salary.
So, let’s say the employer wants to match 3%. The employee puts in 3% of their salary to the plan and likewise, the employer puts in 3% to the plan.
To the employer, there are benefits as well:
The downside: there are fees involved that are charged to the employer. These are based on the amount of employees you have. A small business--10-15 employees-- might see an annual cost of $1000. However, if you are contributing to the plan as well for yourself--up to $19,000 per year--as opposed to paying outside sales fees of 3-6%, then it’s a wash.
Another option is the Simple IRA.
There are similarities as discussed above: it's a tax-deferred plan and can be written off as a business expense. In addition, there are no fees to the employer, it is very easy to set up and has low paperwork.
I can help you determine which retirement plan makes sense for you and your employees.
That SCORE infographic I referred to earlier made this claim as well:
"40% of owners are not confident they’ll be able to retire before age 65"
Does any of this ring true for you? Give me a call and let's talk.