Retiring comfortably is something every worker dreams of. Sponsoring a retirement plan can help them get there.
Retirement plans come in a wide range of shapes and sizes, each with its own unique functionality. The following steps can help simplify the process of choosing and managing a plan.
Step 1: Take stock of your company’s financial situation
The wide variety of available plans means virtually any business can begin a retirement plan regardless of its financial situation. Before you begin looking, however, it’s important to understand the amount of money your company can afford to spend on setting up a plan. Many plans, such as a defined benefit plan, have significant administrative costs and often require employer funding. Others, such as 401(k)s, are less expensive to set up and don”;t always require employer contributions. Knowing your price range will quickly narrow down the wide range of options and make the decision process much easier.
Step 2: Research the options
There are several types of retirement plans that your small business could potentially offer; each functions differently and carries different benefits. The first step toward establishing a plan for your company is learning what is out there. 401(k) is the most well-known retirement plan available to any business. This plan allows employees to add up to $16,500 a year to their account and defer taxes on that income until they withdraw the funds. Your company may also contribute funds to employees’ 401(k) plans. Although this option is widely available, it is expensive and must be administered by an outside institution.
Another option is the Savings Incentive Match Plan for Employees, or SIMPLE IRA, which is available to businesses with fewer than 100 employees that offer no other retirement plans. Employees can contribute up to up to $11,500 annually to this plan. The employer is required to contribute at least two percent of the employee”;s annual salary to the plan. The SIMPLE IRA is designed to be less complex than other options and therefore not as costly to administer. Many companies opt for a profit sharing plan, which places no requirement on contributions, and the business can link the amount it contributes to profits.
There are many other options available. This partial list is meant only to demonstrate the range available to your business. Research retirement plans carefully and determine what’s best for your employees and within your budget.
Step 3: Consider your employees
Many employees claim that they don”;t participate in their company”;s retirement plan because they can”;t afford the minimum contributions and the strict eligibility requirements of some plans. Opting for a retirement plan that doesn”;t suit your employees is useless. Talk to your employees to get a gauge on how much they are willing to contribute to the plan and what benefits they”;d expect.
Age, marriage and education affects who participates in your company”;s retirement plan, reports the SBA”;s study. Before you make a final decision, look at the plan”;s eligibility requirements. Will the majority of your workforce be allowed to partake or will their personal circumstances leave them out in the cold?
Step 4: Evaluate the provider
You will be relying heavily on your provider to file legal documents and administer funds. A vendor that is difficult to work with or doesn”;t follow through on their end of the partnership can make your life a lot more difficult. Go online and research what other customers are saying about the vendor. Reading company reviews can give you a heads up on what to expect from your retirement services provider before you let them into your business.
Step 5: Get an expert”;s opinion
Small business owners should seek help from a retirement services expert, such as a consultant or broker, says Chris Kunze, chief operating officer of Perspectives Ltd., an employee assistance program provider. Consultants and brokers are immersed in the industry day-in and day-out. Their experience and know-how can help you separate the good vendors from the bad. Setting up a retirement plan can also entail extensive administrative and legal tasks. An industry expert can offer accurate guidance and will lend a hand with all these tasks.
Some small businesses find that it’s helpful to contact a financial institution such as a bank or insurance company to assist in establishing and managing the plan. Although some of these services come with a fee, it’s typically a good idea unless you have strong expertise in the areas of finance and government regulation.
Step 6: Figure out who”;s in charge
Administration and maintenance of the retirement plan will vary by provider. Kunze says you need to have a clear understanding of your role and your provider”;s role.
“;Know what is and what is not provided,”; says Kunze. “;Know who is going to do what.”;
As much as you like being in charge, managing the plan yourself may be a bigger job than you”;re prepared to handle. Filling paperwork, tracking contributions and enrolling new employees is a full-time job. Be sure not to select a plan that saddles you with a bunch of time-consuming responsibilities.
Step 7: Be aware of nondiscrimination laws governing retirement plans
There are strict government regulations that define how qualified retirement plans -; those with tax-deductible benefit -; are to be made available. To qualify for these retirement plans, they must be open to all employees regardless of their position within the company. Regulations also include provisions to ensure that the plans are not disproportionately benefiting the highest-paid employees. Certain plans, such as 401(k), require that the company undergo nondiscrimination testing that measures this ratio and determines that the benefits are not skewed toward highly-compensated employees.
You”;ll need to investigate the rules that apply to the plan you select and avoid any legal complications by making sure they are compatible with the structure of your company. It”;s important that you know who is in charge of the year-end tax paperwork, says Kunze. Your business will get stuck in a legal mess if the paperwork fails to get filed.
Step 8: Consider the plan”;s portability
Employees will come and go; it”;s just a part of business. By law, employees must be able to move their funds from your company”;s retirement saving account to another when they leave your company, but it doesn”;t say anything about making it easy. But why should you care about an employee who is leaving?”;
Portability is important because it leaves a legacy taste,”; says Kunze. “;If the process is laborious, someone is going to hear about it.”;
Read more: insperity.com