According to the Government Accountability Office, half of employees in the private sector are not saving anything for retirement and most because they don’t have access to a plan through their employer.
As a business owner, why should you care? Why should you consider offering a retirement plan… or make the one you have better?
- “They won’t use it….” One misconception some business owners have is that their employees won’t even use the plan or their employees have never really seemed “interested” in having one. However, 84% of workers, according to the GAO, said they did not participate in a plan because there was not a plan available. I’ve yet to be involved in a start-up plan that did not have at least 60% participation. If you offer it, it’s likely that most will use it. Plans I am aware of that did not have that success, were poorly introduced and lacked a sound educational component to the introduction.
- “I am not convinced it helps with attraction and retention…” Sure, health insurance has been the most sought after benefit, but with many smaller employers sending their employees to the Health Insurance Marketplace, what other benefit will allow you to “stand out” versus the other smaller employers you compete with? All things being equal (compensation and health insurance) a “killer” retirement plan might bring them over to your side.
- “Of course I care about my employees, but…” If you truly care about your employees, you want to see them succeed not only professionally, but personally too. Doesn’t it make sense that a worker who is not under financial stress personally is likely to be happier and more productive professionally? Doesn’t’ this benefit you? Retirement isn’t the only financial concern people have but it’s certainly part of the equation.
- “What’s in it for me…?” Plenty…a financially fatal mistake business owners often make is that they have too much of their own fortune tied up in the business. Diversification down other avenues, such as you own company’s 401(k) plan, can provideyou with some options at retirement age other than working forever or the forced liquidation of your business.
- “Anything else….?” If that’s not enough, the IRS says you can deduct employer matching contributions and your contributions as well…and “employer” contributions that match “your” contributions. Depending on the plan or plan design chosen, some business owners may be able to make up to $53,000 ($59,000 if age 50+) in tax deductible contributions toward their own personal benefit in 2016. (I hope that got your attention.)
Whether you consider a SEP IRA, a SIMPLE IRA, or a traditional 401(K), there’s a plan that may be right for you and your business. If you’ve thought about it before, NOW is a great time to think about it again.