If your business is growing and you feel ready to recruit the best talent, you are probably thinking about offering employee benefits. One of the first benefits to consider is a retirement plan. Retirement plans are highly attractive and will likely be brought up in onboarding negotiations. Here are some things to consider before choosing a plan.
While there are costs associated with providing employee retirement plans, it is far more affordable than you may think. Let’s look at 401(k) retirement plans as an example. Generally, you will be required to pay a one-time fee at the time of initiation. On average, this will be about $1000 per employee. 401(k)s are funded through an employee’s elective deferrals taken directly from the monthly paycheck. The benefit comes from the employer selecting a percentage of that deferral to match. This should be factored into the costs. There are also administration fees, which are for basic operational and account management services. These costs add up, but they are tax deductible, and depending on the size of your business, you might even be eligible for tax credits.
In order to offer retirement plans, you are legally required to follow federal regulations. You will also be required to provide documentation proving compliance. For example, to provide plans such as a 401(k), you will have to pass nondiscriminatory tests to ensure that benefits are being provided equally among your employees. However, a safe harbor 401(k) plan lets you get around the non-discrimination testing. This is because safe harbor plans satisfy the nondiscrimination requirement with built-in contribution standards.
Forms and Other IRS Involvement
The IRS is involved in several ways when it comes to overseeing retirement plans. You will be required to deposit your employees’ deferrals into the plan in a timely manner. You will also be required to file form 5500 on time each year. The 5500 form provides documentation for funding sources, percentage of matching on employee elective deferrals, and which employees are receiving the benefit. This is a long and arduous form to fill out, and mistakes are easy to make. Consider using online guides or hiring a professional to help you navigate this complicated system.
Even though it isn’t easy, it is worth offering your employees benefits such as a retirement plan. You will be more competitive in attracting the best talent for your company. Because any government-overseen aspect of business is bound to be complicated, you simply need to take the time to fully understand every detail.
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