Help Small Business Clients With Retirement Plansby
Many workers today are extending employment into their senior years, primarily for two reasons: Either they haven’t yet met their savings goals or they don’t fully understand their expenses to decide when it’s a good time to retire. This is a risky strategy because leaves of absence, layoffs or caregiver issues can arise unexpectedly and limit their income. As such, businesses that offer retirement plans need help selecting them.
Accountants, either as Certified Financial Planners themselves or working with payroll and benefits partners who have expertise in compliance, can help navigate the many changing laws governing retirement plans businesses can offer.
The U.S. Federal Reserve reports that one of every four workers has no retirement savings at all. Additionally, some “40.6 percent of all U.S. households where the head of the household is between 35 and 64 are projected to run short of money in retirement,” according to the 2019 Retirement Security Projection Model of the Employee Benefit Research Institute (EBRI)..
Large organizations tend to have the capacity to offer 401(k) plans or pensions, but small-business owners often think that providing retirement plans for their employees are beyond their reach. In fact, less than half (42 percent) of businesses with fewer than 100 employees offer retirement benefits, according to a 2019 study by research trade association LIMRA.
For small-business workers, retirement security can seem like a lofty and unattainable dream. And because of the small scale of these businesses, employers may find it difficult to provide an affordable, comprehensive and easy-to-navigate retirement plan.
But small businesses and their workers do not have to be left behind. In an effort to address the retirement savings gap, 5 states have an active state mandated retirement program in place requiring small businesses to offer retirement savings opportunities for their employees. And 10 other states have passed legislation and several other states have proposed legislation to implement similar laws within the next few years
While government-run programs generally have no fees, they provide little flexibility compared to retirement solutions offered by private record keepers which typically have more plan options that can be customized.
Shopping For a Plan
Here are some key elements your small business clients need to consider when selecting the right plan:
1. Ease of Setup and Use
Creating a retirement plan, sometimes called “sponsoring a plan,” involves a number of steps. Often times a plan provider will handle many of the steps. Activities required for establishing a retirement plan include selecting a plan type, setting up a trust to hold plan assets, maintaining records of employee contributions and values, and providing information to plan participants.
There are other administrative tasks as well like connecting employees’ retirement plan contributions to the company’s payroll platform. This might sound daunting. Small-business owners want to focus most of their attention on one thing: their business.
So, a new retirement plan shouldn’t add paperwork and headaches. Owners should find a plan provider that includes both administrative and investment management features to handle everything from notifications to IRS filings. Look for embedded 3(16) administrative fiduciary services and 3(38) investment management services to handle the heavy lifting. Automate plan features to make it easy for participants to join and save for the future.
No two businesses are the same, so owners should avoid cookie-cutter approaches and find a retirement plan that lets them modify elements like eligibility requirements, matching contributions and vesting schedules. Some plan providers let employees enroll via text whenever they choose. If a business employs workers who speak different languages, owners should make sure the plan offers support for them.
3. Tax Benefits
Small-business clients with fewer than 50 employees can be eligible for tax credits to offset some of the costs of setting up or administering a retirement plan. This incentive benefits the business, just as the new retirement plan benefits the employees.
Retirement plan providers often offer several options with varying fee structures, and those will differ from provider to provider. Business owners should review each provider’s offering closely, consider both near-term and long-term expenses and understand which fees are paid by the employer versus those paid by the employee. Differences in fee structures can impact the long-term savings potential for the employees.
Owners and employees alike should be able to check in on their savings easily or make withdrawals from their accounts if a financial hardship arises. Many plans have mobile apps that offer employees a snapshot view to help them better understand their benefits. Some come equipped with targeted mobile messaging to help employees optimize their plans as they go.
7. Impact on Hiring
As business clients struggle to bounce back from the pandemic, many of them are facing a new challenge: A shortage of workers. Competition for applicants remains fierce, and some businesses are offering incentives just for people to come in and interview. As a result, companies of all sizes are trying to stand out.
A retirement plan remains an extremely attractive benefit, one likely to lure a larger pool of quality applicants. Accountants, by helping their clients operate in compliance and to be setup to thrive in a challenging economic time, can recommend competitive talent attraction and retention strategies like adding retirement plans to their compensation.
Owners will then have more options to choose from when adding new staff members. They’re also more likely to retain their employees, who now have an incentive to stay and watch their retirement savings grow.
A comfortable retirement is something that should be accessible to every worker. With some careful planning and assistance from a quality plan provider, small-business owner clients and their employees can work together to make sure they have enough money to make it happen.
For additional reading, The U.S. Department of Labor and the IRS offer a detailed booklet specifically tailored to small businesses that are considering retirement plans.
Jim is Senior Vice President & General Manager of Retirement Services at ADP, where he is accountable for driving business results supporting tens of thousands of small, mid, and enterprise level organizations. He's also responsible for setting the strategy and helping to oversee the day-to-day operations of the business, which includes...