Choosing a Retirement Plan for your Business


Many small business owners are interested in providing retirement plans for their employees. After all, offering retirement plans can be a way to attract and retain talent. A variety of factors, however, can deter small business owners from offering plans to their employees, such as cost or lack of resources. But with over 90 percent of businesses with more than 100 employees providing retirement benefits, it is important that small business owners consider the options available.

Nearly 70 percent of employers leverage retirement benefits to attract new hires, and 57 percent use retirement plans to earn the loyalty of current employees. Offering retirement plans can help level the playing field for small-business owners who may be competing with larger companies to retain talent.

Providing retirement benefits can also impact productivity. Studies indicate that an employee’s stress can affect the workplace. Offering employer-sponsored retirement plans could help make a difference in employee productivity, financial well-being and even mental health. When you consider that 60 percent of workers are worried about saving for retirement, it makes it easier to see how providing benefits could lead to peace of mind and long-term financial security for your employees.

On the employer side, offering a retirement plan to your employees might also mean a significant tax benefit. Make sure to consult with a tax professional to understand the potential tax benefits for your company.

There are several options available to small businesses interested in offering retirement benefits to their employees. Here are a few to consider:

Traditional 401(k) Plan

A traditional 401(k) plan is a widely known retirement plan option. It allows the employee to make contributions with pretax dollars. These contributions are typically made to the plan through payroll deductions. Additionally, contributions to the plan by the employee could reduce their gross earnings for federal income tax purposes.

Simplified Employee Pension (SEP) IRA Plan

The SEP Plan offers many of the tax benefits of a 401(k) plan but eliminates some of the administrative burden and costs that come with providing retirement benefits for employees. Employer contributions are deposited directly into an employee’s SEP-IRA. Contributions are flexible and the employer can decide whether they want to make contributions and may vary from year to year.

Savings Incentive Match Plan for Employees (SIMPLE) IRA Plan

The SIMPLE IRA Plan is for companies with 100 or fewer employees who have no other qualified retirement plans. They require mandatory employee contributions and employer contributions are discretionary. Employee contributions are made on a salary deferral basis.

There are several factors to consider before choosing a retirement plan for your company. Think about your business goals, availability of funds to contribute to the program and your plan for future expansion.

Additionally, consider your employees, their ages, salaries, years of service and even your turnover rate. What’s right for one company may not be right for another. Before deciding on a plan, sit down with your financial advisor to discuss the options.


About Author

Marcellus Davis
Financial Advisor
Morgan Stanley Wealth Management
(713) 965-5015

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