April 23, 2014 | By fischer |
Many businesses are struggling to find and retain the top-level talent that they need to thrive in a competitive industry. They are realizing that to attract and keep top talent they need to address the three most important reasons why employees make their career decisions.
When it comes to deciding between job offers, polling shows that employees rank only salary and health plans as more important than a retirement. Offering some kind of retirement plan is a virtual necessity. When you are looking over potential options for your employees, one possibility is to make sure that everyone working for you has the option to join a 401(k) plan.
Three Big Questions
Before setting up an employee retirement plan there are three main questions that you need to ask:
Is a 401(k) right for the size of my business?
In order for a 401(k) plan to be viable you must have a minimum number of employees. If your company is composed mainly of independent contractors or sole proprietors who are working under the same umbrella, a 401(k) may not be right for you. Other retirement plans exist to meet the needs of employees that work on straight commission or work independently for a franchise. However, this does not mean that you need to be a big corporation. Small businesses can also benefit from starting a 401(k) plan.
Do you have the capital for matching contributions?
This is not something that you need to decide immediately, but it will be to your benefit to budget it well in advance. Each individual employee can contribute from $17,500 to $23,000 depending on their age, but it is up to you to decide if you want to match and for how much. Keep in mind exactly how much you are capable of matching, because an employer match makes the plans much more attractive.
What are the tax implications?
While this is an obvious benefit for your employees, with their contributions reducing their taxable income, you need to look closer at your own tax situation and understand the advantages and drawbacks. You may qualify for tax credits to offset setup costs in the early years of administrating your plan, but do your research to discover any possible state or federal tax breaks you can take advantage of.
Considerations When Setting Up Your 401(k)
There are a number of considerations when setting up your new retirement plan. Keep them in mind as you go through the process because once the plan is up and running it will take on a life of its own.
Decide on a plan:
There are 3 main types of 401(k) plans: Traditional, Safe Harbor, and Tiered Profit Sharing. Each has distinct advantages and drawbacks. Each rewards your employees differently for their contributions. You need to decide on the plan that is most advantageous for your business and its employees.
Chose a provider:
Just as important as deciding what kind of plan you want is selecting a provider to service your plan. You may have an established relationship with a particular financial institution already, but make certain that you shop around before you make a decision.
Keep an eye on the costs:
This can’t be said enough. You will want to choose a plan that will keep costs to your employees and your own administrative fees to a minimum.
Careful consideration of these issues as you are setting up your plan can save you a great amount of heartbreak later on. Your employees will have a more secure future tomorrow if you make the right decisions today.