5 Reasons to Start a Retirement Plan for your Workers
Even if you’ve considered starting a retirement plan for your employees in the past, it might be worth revisiting the idea now. Recent regulatory changes have made it more affordable and less complicated to put such a plan in place, says Bob Lees, Retirement Plan Services Manager at 1834, a division of Old National Bank.
If helping your employees build a nest egg for retirement has been on your to-do list, here’s are five reasons that now might be the time to check it off:
1. You may not have to pay startup costs.
As part of the Setting Every Community Up for Retirement Act (SECURE) 2.0 passed last year, small businesses have access to significant tax credits to offset the costs of launching a plan. Businesses that have fewer than 100 employees may be eligible for a tax credit worth up to 50% of their administrative costs up to $5,000, while those with less than 50 workers can have 100% of costs covered, plus an additional credit of up to $1,000 per employee for the first 50 workers.
There’s also another credit of up to $1,000 per eligible employee for employer matching contributions. (Check with a tax pro to see whether your business fits the requirements to receive a tax credit.)
Beginning in 2024, employers will be able to offer “starter” 401(k) plans, in which employees can make tax-deferred contributions at the same level as Individual Retirement Account (IRA) contributions.
“This is a great entry point for small businesses, especially since there are no employer contributions even the smallest of employers can offer a plan to their employees,” Lees says.
2. It will give you an edge in a tight labor market.
Small employers face a challenge competing with larger companies in attracting and retaining workers in today’s difficult employment market. A recent survey by WTW found that retirement is the benefit that workers most want their employer to prioritize, with 47% saying that retirement benefits are an important reason to join with a company while 60% say such benefits are an important reason to stay.
3. There are new options that require less in-house expertise.
SECURE 2.0’s predecessor, the 2019 SECURE Act also had a provision aimed at making it easier for small businesses to put workplace retirement plans in place. Through “pooled employer plans” (PEPs), small businesses can give their employees access to a larger plan comprised of multiple small businesses and run by retirement plan professionals.
“A pooled employer plan is a great solution if you don’t currently offer a retirement plan but have considered doing so, or have a plan and are looking to significantly reduce your involvement with plan administration,” Lees says. “Today’s PEPs can be implemented more quickly than single-employer retirement plans.”
While the employers will retain some fiduciary responsibilities, they can partner with a PEP provider with retirement plan expertise, that will help with much of the day-to-day administration and investment selection duties. Plus, the larger plan will get access to scale pricing and services that might otherwise be out of reach for individual small employers.
4. You’ll have options outside of the state plan
A growing number of states now have requirements for all employers—including small businesses--to make retirement plans available to their workers. In those states, employers who don’t have their own plan will have to join one run by the states. By setting up a plan of your own, you can ensure that it’s more tailored to your workers’ needs.
5. There are tax benefits – for you and your business
In addition to the tax credits associated with a new plan, there are other tax incentives that could save you money as a business owner. While in most plans you don’t need to make employer contributions for workers, if you choose to do so, you’ll be able to deduct those contributions—which are not subject to Social Security or Medicare taxes--on your company’s income taxes.
There are benefits for your personal income taxes as well. Remember, you’ll be a participant in the plan as well, and you can reduce your personal income by contributing to your workplace retirement plan. The current 401(k) contribution limits are $22,500 per year per person per year, with an extra $7,500 for those older than 50.
Interested in learning more about retirement plan options? Connect with Bob Lees or a member of the retirement plan services team today! They are ready to have a consultative conversation to help with retirement plan design to achieve your businesses' goals while also benefitting your employees.
Investment instruments utilized by 1834 are not insured by the FDIC nor any other government agency, are not deposits or other obligations of Old National Wealth Management, Old National Bank, its parent company or affiliates, and involve investment risk including the possible loss of principal invested.