Just over half of private sector workers in the United States are covered by an employer-sponsored retirement plan, and few workers save without a retirement plan.1 Workers are beginning to understand the importance of retirement savings, and the topic is of increasing interest to legislators. As a result, many states require employers to offer some form of retirement savings plan, and workers are looking for employment opportunities that offer this type of benefit.
A recent report cited some of the main reasons small businesses don’t offer retirement plans.2 Some companies claim that they have not firmly established consistent cash flow to deliver their plans. They worry about the potential administrative liability and costs associated with the set-up and the theory that workers prefer cash compensation or better health insurance instead of retirement benefits. With increasing pressure to provide retirement solutions, it’s important for small businesses to be familiar with the options available. You might be surprised that providing a retirement solution isn’t as expensive or difficult to set up as you might think.
Small businesses have several options when it comes to employee retirement plan benefits. This article aims to clear up any confusion regarding the various retirement options. This provides an overview of each type of plan and includes a comparison chart outlining key features to help you make a more informed decision about the best solution for your business needs. .
The three most common small business retirement solutions are:
- 401(k)
- SEP IRAs
- Simple IRA
401(k)
A 401(k) plan provides tax breaks for money donated by employees. Contributions are automatically deducted from the employee’s salary and invested. The investment options within the plan are selected by you as an employer or delegated trustee, and from that pre-determined selection, the employee can select funds for her 401(k) account for the individual. Many companies offer what is called a 401(k) match. In this match, employers match employee contributions up to a certain percentage as benefits and incentives for employees to increase their contributions. Employer contributions in 401(k) plans are voluntary.
SEP/SIMPLE IRA
The Simplified Employee Pension (SEP) and Savings Incentive Match Plan (SIMPLE) IRA for Employees is a retirement plan that allows employees to save before tax for retirement. Compared to a 401(k), SIMPLE/SEP IRAs offer fewer plan design options and features, but are easier to set up and manage, and provide a cost-effective way for companies to initiate retirement plans. Offers. However, since the employee is responsible for managing her own investments in her SIMPLE/SEP IRA, she is encouraged to work with her financial advisor who can discuss investment choices and savings strategies.
While you may see value in providing retirement solutions for your employees, you may still be concerned about cost. Setting up a retirement solution may qualify your business for tax benefits. If you’re worried about the time you spend managing your plan, because some plans come with pre-selected fund lineups and service providers to monitor performance and complete administrative tasks and responsibilities. , you can spend more time running your business.
Each type of retirement solution has its pros and cons, but a 401(k) may be the most flexible for your company. Contribution limits are higher than his SIMPLE IRA deferral limit, and offering matches can motivate employees to save even more. In addition, Match gives businesses a competitive advantage. According to the U.S. Bureau of Labor Statistics National Compensation Survey, more than half of employers offering 401(k) plans offer Match.2 In today’s job market, benefits are becoming increasingly important to attracting and retaining top talent.3
Morgan Stanley at Work offers 401(k) services for small businesses. Help you and your employees reach their retirement plan goals. Additionally, working with providers like Morgan Stanley gives you access to financial advisors. Financial advisors can create a retirement plan that meets the needs of the company and employees, with a variety of investment options to suit different needs.
As a small business owner, you can help your employees improve their future finances by providing retirement benefits and leveraging the plan as an effective tool for attracting and retaining industry talent. If you already have a SIMPLE IRA program and are interested in changing your plan to a 401(k), you must have an election by October for your new plan to take effect in the new calendar year.
Talk to Morgan Stanley financial, legal and tax advisors to discuss your options and the retirement solutions that make the most sense for your business and employees.
Morgan Stanley at Work builds financial confidence through thoughtful education, helping individuals embrace today and tomorrow.
Comments
Post a Comment