by Julie Tuggle-Nguyen
While your efforts going into the new year may remain focused on staffing and retention, con-sidering a 401k retirement plan could be a way to achieve both. Many small businesses may think that such plans are only for the big guys, that they are too expensive to consider or too complicated to manage. Yet, that is not true today. Whether you have one employee (you) or a team of 100, 401k programs are an attractive benefit worth considering.
Studies show that half of American families have no retirement savings, and that less than half of small businesses offer a retirement plan. Given these two data points, it’s not surprising that of-fering a small business 401(k) can not only have an impact on recruiting but also sends a message to your current team that you are invested in their future with your company. In addition, a 401k can level the playing field if you see you are losing talent to large organizations. It is also a good business tool that can provide tax savings for you and your employees.
You might want to ask yourself these questions to determine if a 401k is right for you or your business.
- Are you in a highly competitive hiring situation? Having a 401k might help seal the deal.
- Is your business growing? If you are a small start-up with just one or two employees, you may want to hold off. But if you are growing, a 401k might make sense.
- Do you have a retirement nest egg for yourself that you are comfortable with and on track for retirement readiness yourself? Many small business owners may plan to sell their business to fund their retirement, but it’s estimated only 20% are actually able to sell.
If you determine that establishing a 401k program is right for your business, you will need to think about:
- When employees are eligible to participate.
- Vesting schedule.
- Employer matching and/or profit-sharing details.
- How distributions would be handled.
You will also need to identify a resource to partner with you on the program. You can buy the various services including investment, compliance, and plan administration a la carte or you can go to providers who offer wrap around services. Whoever you choose, you will want to make sure they understand the unique needs of your industry and of your workforce. Some of the op-erational items you will want to consider will include integration with popular payroll providers, on-boarding your employees, handling plan administration and compliance.
You will also want to understand the fee structure associated with the proposed 401k plan. Fee transparency, around operation of the plan as well as investment fees, is a critical component in the provider selection process.
Be sure to ask about potential tax incentives, particularly if your organization is under 100 em-ployees. If you are starting your business’ first 410k plan and have less than 100 employees, there are potential tax credits for each of the first three years of your plan that can be applied to your qualified business costs such as plan set up and administration.
At Midwest BankCentre we have had a 401k plan in place for years. But like any established program, it is important to revisit them periodically. By switching plan providers, we were able to improve our investment selections, lower our overall administration fees and receive better support at both the plan level and the participant level. Our new provider also ensures that we are in-line with all the necessary compliance. Many plan providers will do a free side-by-side comparison of your existing 401k plan and fees, including benchmarking, management fees, in-vestment options and investment performance.
Your small business may already go above and beyond by offering competitive compensation, a great culture and health benefits. A 401k plan might be the right benefit to add to the mix to help increase hiring and retention in today’s competitive labor market.
Julie Tuggle-Nguyen is EVP of Human Resources, Midwest BankCentre.