As an entrepreneur and business owner, it is important that you understand retirement planning, not just for yourself, but because it is also your responsibility to offer plan options for retirement to your employees. While it is not a requirement that you offer retirement plan options, it is such a widespread benefit that it is almost a requirement to keep high quality talent at your business. Here are a few crucial things that your business needs to think about with a retirement plan for your employees for the most effective and cost-efficient retirement planning.
The first thing that your business needs to think about with a retirement plan for employees is the plan fees and how to keep them as low as possible for you. Every retirement plan that you might offer to your employees might come with a fee that you have to pay as the business owner. You will likely have to pay setup fees, distractive and participation fees, and perhaps advisory fees for each employee and plan. Make sure that you do your research and find the plans that you want to offer that will impact your bottom line in the smallest way possible.
Highly Compensated Employees
Another thing that your business should be thinking about with your retirement plans is how highly compensated employees impact your planning. With a traditional or Roth 401(k) plan, your business will be nondiscrimination tested to ensure that your plans and employer contributions aren’t unfairly benefiting highly compensated employees. Your business can circumvent the non-discrimination testing with a safe harbor 401(k) plan. A safe harbor 401(k) requires an employer contribution and is a good call for business owners with very few employees who are all highly paid and want to save aggressively for retirement.
How to Structure Your Contributions
The final thing that you should think about with a retirement plan for your business is how you should structure your employer contributions. There are a few ways to structure employee contributions, the typical method is to match a percentage of contributions up to a certain dollar amount limit, so that every employee gets a fair chance and highly compensated employees are capped on their employer contributions as well to avoid discrimination. Some employers can help out lesser compensated employees by matching contributions exactly up to a certain dollar amount, and then matching a percentage.
Retirement plans are complicated for individuals, so it makes sense that they are even more complicated for the business that is offering them. But with the right thinking, you can avoid confusion and have retirement plans to really work. Make sure that your business is considering these three things when deciding what your retirement planning is going to look like.
Check out this article on how to integrate new employees into your company culture!