Business Owners: Is Your Employee Retirement Plan Benefiting You Too?
by TYLER SINCLAIR, PARTNER
According to the Small Business Administration (SBA), our economy is made up of more than 30 million small businesses. Digital or brick-and-mortar, the massive number of small businesses make up a big portion of the workforce. With competition this steep, standing out to attract customers – and retain employees – is key!
Keeping talented professionals at your company can be one of your greatest competitive advantages. Here’s the good news: Keeping your employees happy enough to stay long-term is easier than you may think. More than 80 percent of small businesses have no retirement plan for employees; so offering one to your employees can speak volumes to your staff, and be a strong selling point for new talent.
But how do you find a sustainable plan that benefits both your employees and yourself? Don’t get overwhelmed. As financial advisors in Brentwood, TN, TrustCore can help.
Looking for the right employee benefits for your company? Contact TrustCore to see how we can help.
How to Determine the Right Retirement Plan for Your Business
Implementing a retirement plan has a number of benefits. Employees receive wealth-building capabilities through saving for retirement, access professional investment tools, and experience tax-advantaged growth. Business owners can receive tax-deductible incentives, like matching contributions and administrative expenses.
2 Main Types of Retirement Plans
There are two basic types of retirement plans: Defined benefit plans, and defined contribution plans.
Defined Contribution Plans
Defined contribution plans, such as a 401(k), 403(b) and profit-sharing plans, give employees the control over the amount they save and the investments they hold. While the plan itself offers a menu of investment options, the choice is still up to the employee. Also, there is no lifetime income guarantee.
Defined contribution plans can be easier to maintain in the long-run, especially if you have a growing number of employees.
Defined Benefit Plans
Defined benefit plans are what people have simply referred to as “pensions.” These plans include employer and employee contributions and, once retired, the employee receives a monthly income for life. The employer is responsible for the investments in the plan, and if there is a shortfall in the balance needed to guarantee payments, the employer makes up the difference.
This retirement plan model can be an excellent retention tool, but can be costly and risky. In fact, these plans are very rare, explaining why only 4 percent of companies offer a defined benefit plan today, as opposed to 40 percent in the 1980s.
Retirement Plan Factors to Consider
When it comes to any retirement plan, details matter. With that said, consider your goals and priorities first, and implement accordingly.
Number of Employees
Do you have 10 employees, or 110? This can make a huge difference in the required work and costs of your plan. The smaller your team, the more flexibility you may have with your plan options. Also, are you planning on growing in the future? A plan that supports your growth could be a good idea.
What’s Most Important to You and Your Employees
Retirement plans were not created equal. The features for each plan differ, and can serve different financial needs (see the chart below). Work with a financial advisor to find a plan that satisfies the needs of your employees as well as your own.
Saving Potential: Though all retirement plans enable participants to save, contribution limits vary from plan to plan.
Management: Retirement plans require management and maintenance. Some plans may require you to hire a third-party administrator. Administrative duties include tasks like authorizing investment transactions, recordkeeping and filing tax forms.
Fees: Retirement plans cost money to initiate and maintain. Plan fees can be complex, but generally fall within three categories: Plan administration fees, investment fees and individual service fees. The costs of running your plan can vary greatly. Within these categories, are different pay structures, from flat fees to per-participant costs and more.
The following chart is not an exhaustive list by any means, but can be helpful at a glance to see how each plan differs by financial goal.
How to Maximize Employee Benefits as a Business Owner
At TrustCore, our financial advisors in Brentwood, TN help business owners nationwide with a number of their planning needs including employee benefit plans. Going it alone can be stressful, complicated and costly if you make a mistake. Navigating your options, plan features, fees and other seemingly small details on your own can make starting a retirement plan very complex.
Don’t be afraid to ask for help. Small business owners are known to wear a lot of hats and fill many roles. But should retirement-plan manager really be one of them? A financial advisor can help cut through the complexity by helping you discover and determine what your financial priorities truly are as an individual and a business owner. Important details like contribution limits, IRS requirements, reporting requirements and of course, costs can be demystified by a financial advisor who understands the unique financial concerns business owners have.
As a business owner, there are also cashflow needs to consider, estate planning needs and insurance requirements. For example, the financial advisors at TrustCore help our business-owner clients ensure that there is minimal business interruption in the event of an untimely death and make sure their families are properly provided for. Our team is also experienced in helping business owners put buy/sell agreements in place and assisting with the purchase of buy/sell insurance along with key-man insurance, as appropriate.
How a Financial Advisor Can Help
After initial implementation, retirement planning does not stop. Once a plan has been established, maintaining that plan can also be difficult. Businesses grow and change. Establishing a long-term relationship with a financial advisor can help ensure your financial plan is updated as well. At TrustCore, we enjoy working with business owners from the very beginning, with early-stage business planning all the way to assisting with its sale.
Remember, your plan’s performance can not only affect your employees’ retirement but yours as well!
Don’t guess. Contact TrustCore and get the conversation started!
Important Information and Disclosures
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