Choosing the right retirement plan for a small business: Know your options

Running a small business comes with unique complexities. From recruiting and retaining employees, to keeping pace with competitors, small business owners have a lot on their plates in today’s uncertain economy. Adding a retirement plan to the mix might seem like yet another expense and burden; however, offering one can prove highly cost-effective and valuable for your business and, importantly, your employees.

Selecting the right retirement plan provider is crucial

Starting out, it may be tempting to identify a provider or an online platform with the lowest fees and stick with that option. But many small business owners may be unaware that there are typically several retirement solutions available, and that these plans can be tailored to their ever-changing needs. So, what initially appears to be the quickest and easiest option may not turn out to be the most suitable plan for your business and goals.

Working with an experienced provider that is willing to spend time designing a plan based on their understanding of your business is crucial to ensure that you are maximizing your plan’s value. As your business evolves and grows, some of your needs may change, such as your optimal type of plan and the amount you can contribute. Having a plan provider that can sit down with you annually to review your plan’s features will help you ensure that your plan continues to support your goals while remaining competitive, and that you are keeping up with the rules and regulations needed to remain compliant.

Related: SECURE 2.0: Big boost for small retirement plans and participants

For example, many might not realize that there are tax incentives provided in the Internal Revenue Code specifically designed to lower costs for small businesses. Moreover, provisions within the recent SECURE 2.0 Act legislation increase these potential savings. Previously, employers with fewer than 100 employees were eligible for a three-year tax credit to cover up to 50% of the startup administrative costs associated with retirement plans, with an annual limit of $5,000.

The new law increased this credit to cover 100% of these expenses for new plans sponsored by employers with up to 50 employees. Taking it one step further, if your company sets up a plan with auto-enrollment, your business could receive an additional $500 per year for the first three years. This is just another example of how picking the right retirement plan service provider—one that will keep you updated on the changing landscape of plan features, and rules and regulations—can be a valuable factor in the long-term success of your company.

Offering a retirement plan can benefit both the business and its employees

While each business’s goals are different, taking measures to help employees plan for retirement is not only beneficial for their well-being and financial security, but for your business as well. Offering retirement plans has been proven to help retain and attract high-quality employees. Data from a 2022 PwC Employee Financial Wellness Survey reported that 76% of employees said they are more likely to be attracted to a company that will prioritize their financial wellness.

Plans can be designed to attract potential candidates, and reward existing employees for their work, by offering benefits like employer matching or profit-sharing contributions. When your business is doing well, profit-sharing contributions are a way to recognize employees for their hard work by increasing your contribution to the plan to reflect your appreciation and share in the company-wide success.

Business owners can see the return on investment for offering thoughtful retirement benefits through the increased work ethic, morale and productivity of employees who know their work will pay off toward a secure financial future. Whether it is to entice job seekers or to hold on to top talent, designing plans to best fit the needs of employees is another way that small businesses can improve the strength of their companies from the inside out.

 Financial education is paramount

 Unfortunately, an improvement in plan offerings doesn’t always go hand-in-hand with financial education, and today, there is a knowledge deficit when it comes to saving for retirement. According to the Federal Reserve Board’s Report on the Economic Well-Being of U.S. Households in 2021 – May 2022 three-fourths of non-retired adults had at least some retirement savings and about one-fourth did not have any. America is clearly in a retirement-saving crisis.

Today, most Americans build retirement savings through an employer-offered plan. Education—namely, ensuring that you and your employees understand the structure of your plan and the resources available—is essential. Therefore, having a plan provider that offers consistent engagement and support is incredibly valuable. When setting up a new plan, check to see if the provider will go the extra step to offer on-site enrollment meetings and education regarding retirement plan features and best saving practices to ensure that employees gain the knowledge they need to make important decisions about their financial future.

In thinking about your business, it’s clear that making educated decisions about your money is crucial. And doing so when the financial markets or economy are volatile is even more critical. As macroeconomic headwinds can influence the success of your business quarter-to-quarter, it is important to remind your employees to look past short-term volatility and continue to focus on saving for the future. Periodically checking in with your provider to review the value of your plan, make sure you are compliant with ever-changing rules and regulations, and communicate your changing needs are important aspects of successful plan administration that can support the long-term goals of your business and employees alike.

Brian Severin is the Senior Executive Vice President and Chief Marketing Officer at Mutual of America Financial Group.