Please ensure Javascript is enabled for purposes of website accessibility
Home / Commentary / Retirement plans: A smart investment for small businesses in 2022 

Retirement plans: A smart investment for small businesses in 2022 

Waddoups. Dezember Photography

Today’s competitive job market, plummeting unemployment rates, the Great Resignation and surging COVID-19 cases are taking their toll on small businesses needing reliable help. According to a recent Business Insider article, today’s labor shortages are primarily worker-driven, with a variety of factors in play. Ultimately, companies need talented workers, but talented workers are expecting more from employers in return. There are many factors an employee may be looking for when changing jobs, such as more flexible hours, the ability to work remotely or even specific benefits offered. According to reports by the ADP Research Institute, only one-third of companies with less than 20 employees offered retirement benefits to workers, while approximately 98% of companies with 5,000 or more employees offered retirement benefits. A savvy small business can help gain an edge in recruiting and retaining talented workers by offering benefits like retirement plans.  

But first you must determine if your business is large enough to offer a retirement plan, and businesses who do choose to offer retirement benefits must meet certain criteria. Many companies can consider a business retirement plan once they’ve been profitable for at least three years.  

However, any size business can offer a 401(k), even self-employed. One of the best options for self-employed business owners is the one-participant 401(k) plan.  

Choosing a small business retirement plan can be daunting. Plans come in a wide variety of sizes and configurations, with many details to sort through and understand.  

The best retirement plan for your small business depends mainly on two factors: 

  • If you have employees other than yourself, your spouse, business partners and their spouses. 
  • If you want employees to contribute to their plan through payroll deductions. 

Often, business owners aren’t sure if they can afford to offer a retirement plan to their employees. However, depending on your tax bracket, tax savings can partially or wholly offset the costs of administration and of contributions for employees. For example, a simplified employee pension (SEP) plan can benefit both the employer and employees by helping the business owner save money while contributing to employees’ retirement accounts. 

Be sure to consider who you want to include in your retirement plan. You can choose between qualified plans, like 401(k)s or profit-sharing, with tax-deferred contributions from the employee and tax-deductible contributions from employers, or nonqualified plans, such as deferred compensation plans, which use after-tax dollars and, in most cases, cannot be tax-deducted by employers. While non-qualified programs can be very selective about the employees they include, qualified plans offer some flexibility regarding eligibility and vesting for employer contributions.  

With so many factors to consider, it can be overwhelming in the face of everything else you need to manage day-to-day. Look for a business retirement plan provider that offers low-cost, convenient plans for partnerships, corporations, businesses with fewer than 100 employees and sole proprietorships. 

Working with a knowledgeable business retirement plan provider should include services to guide you every step of the way. Services to look for include:  

  • Design support to help you evaluate the plans available and choose one that best fits your company. 
  • Assistance with searching for providers, streamlined workflows with an automated provider request for proposal (RFP) process, templates and customization unique to your needs. 
  • Compliance support in today’s challenging economic and regulatory environments. There are fiduciary concerns you may not completely understand, and the time you spend dealing with the details of your plan may be better focused on running your business. Regular plan reviews with specialists help you consider important questions about your plan and service providers. 
  • Performance and fee benchmark reports, including regularly comparing up to five service provider portfolios, demonstrating the relative strengths and weaknesses of fund options. 

Figuring out the right plan for your business and employees can be challenging. Working with the right plan provider can help you spend less time worrying about what you can offer your employees and more time on what you deliver to your customers.   

— Chad Waddoups is a Mountain America Investment Services program manager. This information is not intended as authoritative guidance or tax or legal advice. 

About admin