Why offer a plan?
With the challenges in retirement and, let's face it, the complexity of the plans out there that making offering retirement plans a chore, why would a small business owner want to provide retirement benefits? Let's study the issue, starting with the reasons small business owners say that they don't currently offer plans.
Time and money are precious resources for small business owners so its understandable why wading into the world of retirement planning might seem daunting. Here are some of the reasons small business owners say the don't offer a plan:
Let's take these one-by-one:
1. Not enough employees to make it worthwhile.
Does this sound familiar to you? Would you be surprised to learn that there are thousands of small business plans sponsored by small businesses with only 2 or 3 employees? Would you be surprised to learn that the price for so-called “micro” 401(k) plans has come down significantly in recent years thanks to factors such as increased market pressure and advances in leveraging technology to create more efficient servicing models for the “micro” market?
2. Unable to afford a company match.
How about this one? This can be a big concern for employers who are not sure what is and what is not require in terms of company match contributions. It’s important to realize that there are plan options available that don’t require an employer match contribution. Second, it’s important to recognize that even if you decide to include a company match contribution in a plan, there are a number of plan design options available to you—including the option of having a completely discretionary matching contribution (meaning you only contribute a match contribution when it is affordable).
3. Unstable business circumstances
While this concern should definitely be a key factor in considering what type of retirement plan might be right for you business, it does not—by any means—mean that sponsoring a business retirement plan is beyond your reach. What you’ll learn as you check into your options, is that there are variety of ways you can retain the flexibility needed to navigate various ups and downs.
While there are clear and understandable concerns small business owners have about offering plans, there are also clear advantages to doing so that a savvy small business owner should consider. Some small business owners might be inclined to think that retirement savings is not a “front of mind” issue for employees, the perception of those small business owners that sponsor a business retirement plan indicates otherwise. When surveyed, small business owners ranked retirement savings second in terms of the level of importance in terms of their perception of how important various employee benefits were to their employees. This can be turned into a competitive advantage.
Other reasons to offer a plan
Offering a retirement savings plan can help you meet your personal retirement savings goals
Retirement plans help you avoid putting all eggs in one basket
You can help promote positive financial habits and ensure a secure financial future for your employees
Tax credits are available for certain types of plans
- 100 or fewer employees
Eligible Plan Types:
Maximum Amount of Tax Credit
- 50% of plan startup costs
- Up to a maximum of $500 per year
- First three years of plan