When it comes to the success of your business, having talented, committed employees can have a major impact. One of the best ways to attract and retain the kind of employees you want is to offer a strong benefits package—including a retirement plan. However, keeping your employees happy isn’t the only reason a retirement plan can be a smart business choice. There may be benefits for your bottom line, too.
Why many employees love retirement plans
Many Americans are aware of the importance of saving for retirement. An employer-sponsored plan can make the saving process easier and may offer tax benefits to boot: depending on the plan’s design, employees may be able to make automatic contributions to their plans out of their paychecks with pre-tax dollars. Many plan providers offer retirement planning tools and calculators that can give employees a sense of control over their planning. In addition, if your company provides a matching contribution, the benefit can become even more attractive.
There’s another, less tangible reason a retirement plan can be appealing to potential and current employees: it sends the message that the company cares about and values its employees, and wants to help them plan for the future.
Potential financial advantages for your business
A retirement plan that is considered a useful benefit to your current and future employees can, in turn, be good for your business. But there may be other benefits, too. Some data1 suggests that helping your employees achieve adequate retirement income can actually positively influence your company’s ability to compete.
Financial stress—including worrying about retirement—can take a toll on people. On average, a financially stressed employee spends $300 more per year for health care and is less productive by about $450 per year2. In addition, older employees who don’t feel they’ve saved enough may delay their retirement. Older employees can be incredibly valuable to a company, for their experience and work ethic, but financial stress can potentially take a higher toll on their health and productivity than it might on younger employees. This can end up costing your business. By giving your employees a way to help secure their future, you’re also helping them stay productive at work and helping your business.
Another potential perk of offering a retirement plan: there may be tax benefits for your business. Certain retirement plan structures allow you to make tax-deferred contributions that may reduce your current taxable income and/or increase your annual business tax deduction. A financial professional, legal and/or tax advisor with retirement plan expertise can tell you more.
Choosing the right kind of plan
There are a variety of different retirement plan options that may be available. The two most common types are the 401(k), often used by for-profit businesses, and the 403(b), which is for employees of certain tax-exempt organizations (i.e., non-profits). In addition, there are additional plan options for other entities and plan sponsor circumstances, as well as for highly compensated employees.
The best way to determine the type of plan that makes sense for your business is to talk with a financial professional, legal and/or tax advisor with retirement plan expertise. He or she can walk you through the options and help you choose. Beforehand, make sure you’re prepared to provide him or her with relevant information about your organization—number of employees, annual profit, hiring practices, etc. It’s also worth spending some time thinking about the following questions:
- Do you want to contribute to your employees’ plans? Offering an employer contribution or match can be attractive to employees for obvious reasons. There may be tax benefits for your business, too.
- Do you want to provide a plan for all employees, or just key employees? Your key employees are arguably the most important people to your business, and a strong benefits package can ensure their loyalty. In certain circumstances, federal law allows employers to include certain groups of employees and exclude others from a retirement plan. Even if you don’t feel you can offer a plan for all of your staff, you might consider offering one to your key employees, subject to any applicable regulatory requirements.
- Are there any other benefits you’d like to offer? Often, a retirement plan is part of a comprehensive package of benefits, which might include disability income insurance, retirement disability insurance or long-term care insurance. Looking at benefit options in a holistic way can help you allocate your resources appropriately.
A benefit with benefits
Whether you want to offer a retirement plan to help attract and retain employees, to enjoy the financial perks for your business, or simply because you feel like it’s the right thing to do for your employees, it’s important to choose a plan that’s right for your business.