Creating an Employee Retirement Plan? 5 Questions to Answer

Are you considering the addition of a retirement plan for your employees? Small businesses who want to be competitive in a difficult hiring market find that a retirement plan — most often an employer-sponsored 401(k) — attracts new and higher quality talent. And it helps you keep employees once you’ve hired them.

But there may be a big gap between wanting to create a 401(k) plan and actually setting one up. To accomplish this task, you’ll first need to answer a few questions. The following questions will guide you in the selection of a plan and its implementation.

1. What Do Employees Want?

Before you head out to shop for an employee benefit, you should always start by finding out what the employees want. If you haven’t done a lot of plan shopping yet, these questions are just ways to gauge employee attitudes.

Consider asking questions like will they be satisfied with a limited range of investment options or do they value more choice. How would they feel as a new employee about a waiting period for vesting? Do they want to take out loans? Would they prefer a traditional 401(k) or a Roth 401(k)? And how much impact do they feel a retirement plan would have on new employees or their own decision to stay?

2. What Type of Plan Is Best?

Small businesses have a variety of choices when it comes to retirement benefits. The primary saving vehicles are the 401(k), a SEP IRA, and a SIMPLE IRA. All plans have similarities and differences, so you’ll need to find one that targets your goals as an employer.

The most common is the 401(k). This allows you to choose whether or not to contribute as an employer, allows an unlimited number of employees, and curates investment selection. It’s standard and it’s familiar.

A SIMPLE plan, though, may be easier to administrate if you will have less than 100 employees. It does require an employer contribution, but it also provides more personalization in the investment choices for each. The less-understood SEP IRA plan is geared toward employers who want to do the contributing rather than employees. This may be the simplest plan to operate as an employer.

3. Which Provider Will You Use?

Setting up and staying within the rules of a retirement plan generally requires that you work with a skilled, professional service. All retirement plans have their own set of regulations, and failure to comply with these can cost your business significant fees and penalties. A third-party administrator will do things like set up a trust for contributions, complete annual testing, ensure the right documentation, and file tax returns.

4. How Much Is Your Budget?

You will incur at least some costs to set up and run the plan, but these costs vary depending on what you want and how much you can spend. The more personalization you want in your plan, the more you’ll pay to set it up. And the more services a third-party administrator does, the more you’ll need to pay for these. However, if your goals can’t be met through standard plans, these additional costs are necessary.

5. Who Will Administrate the Plan?

Finally, who in your organization will oversee the plan and be responsible for its operations? Someone will need to calculate, monitor, and remit employee and employer contributions. They may need to do cyclical reconciliation of accounts. And the company will need a ‘point person’ who understands the plan well enough to talk with employees and with the third party administrator.

These questions will help you settle on a plan that satisfies employees and gives you a leg up in recruiting. And it will prepare your business to move forward with that plan smoothly and quickly. Want to know more? Make an appointment with the employee benefits pros at Grant Smith Insurance Agency, LLC, today.