Choosing the Right Retirement Plan for You and Your Employees
Only 34% of small businesses offer a retirement plan for their employees, citing cost, setup challenges, and time constraints as common barriers.
While state-funded programs, such as CalSavers, meet retirement plan mandates, they often lack the flexibility, benefits, and savings potential of other plans.
Competitive retirement plans don’t have to be complicated. Straightforward plans, such as a 401(k) with an employer match, effectively meet state mandates, help employees save for the future, and are relatively simple to implement.
Partnering with an advisor specializing in serving business owners can help simplify the process, navigate complexities, and ensure that options are tailored to your needs.
Choosing a retirement plan for your business is hard. We get it. We’ve been there, and we’ve seen it all. In balancing the expense with the needs of your team, you might find the thought of researching, implementing, funding, and managing the plan daunting — and the numbers are telling:
For businesses with less than 100 employees, 37% said recruitment and retention were top concerns.1 A retirement plan can help address these concerns while offering certain tax advantages and assisting employees to plan for the future.
Still, the perceived high costs and administrative hurdles often outweigh these benefits. Only 34% of small business owners offer a retirement plan,2 with many citing cost, setup challenges, and lack of time to research as key barriers.
State-Mandated Retirement Plans
Many states require businesses of certain sizes to offer their employees a retirement plan.3 For example, California’s state-sponsored CalSavers plan provides employees access to Roth IRAs. While companies may default to this option, as CalSavers markets itself as a more cost-effective, hands-off solution, our extensive work partnering with business owners has shown that it can be administratively burdensome for businesses while lacking the attractive benefits of flexibility and higher savings potentials of other retirement plan options.
Offering an employee retirement plan can provide significant advantages over state-funded programs, but knowing where to start can feel overwhelming. By partnering with a knowledgeable advisor, the process doesn’t have to be complicated or expensive. In fact, sometimes, less may be more.
What Is the Best Retirement Plan for a Business Owner?
A common misconception is that the most competitive retirement plans are complicated or expensive. We have found that simple and elegant is often best. For example, a straightforward 401(k) plan with an employer match can be the best, practical option for many businesses and you can get off the ground quickly. It meets state requirements, helps employees plan for the future, and offers a range of possibilities and worthwhile benefits for both employees and owners.
If you have a complex business structure, such as a medical practice or a multi-faceted partnership, you may benefit from exploring more sophisticated retirement plan options. A financial advisor can guide you through tailored solutions like a cash balance or defined benefit plan, which are often ideal for businesses with a smaller number of high-income-earning employees.
Why Is It So Hard to Find a Retirement Plan?
Simple isn’t always easy. We often analogize shopping around for a retirement plan to buying a car. The ease of service, pricing, benefits, and features depend on the dealership you choose. In the end, the dealership is going to sell you the model they have in stock.
The process is similar when researching and selecting suitable employer-sponsored retirement plans. Each plan has pros and cons, varying by structure, administrative requirements, and tax implications. Without a clear starting point or guidance from an advisor who can see all the options, the process can feel intimidating, especially if you’re time-constrained and focused on running daily operations.
Example of Streamlining the Retirement Plan Selection Process
Meet Bob, a small business owner with 10 employees. Using our deep understanding of the retirement plan process, we helped him simplify the process while saving him money.
The Challenge: Bob was overwhelmed by the abundance of options and needed help finding a plan that benefited him and his employees. He needed someone who not only knew about all the options but could tell him what would make sense for his business.
The Solution: Based on the size of his business and administrative preferences, we recommended a straightforward 401(k) plan. We sat alongside him at his computer, guiding him through each selection and answering his questions on how the plan could benefit him, his employees, and his business. In the end, what could have been an hours-long, frustrating process turned into a 20-minute conversation in which the owner chose a plan that offered him three years' worth of tax credits and significant cost savings.
How a Personal CFO Can Help You Choose the Right Retirement Plan for Your Business
There are many reasons to consider offering a retirement plan for your employees, such as attracting and retaining top talent and helping employees and business owners plan for the future. As business owners ourselves with decades of corporate experience, we deeply understand the retirement plan landscape and the key decisions required based on a business’s assets, staff size, goals, and other plan features, such as administrative support and contribution limits. Partnering with a personal CFO at Quantum has many benefits that can help simplify the process of choosing a retirement plan for your employees. Here’s how we can help:
All-in-One Guidance: Rather than shopping around at multiple “dealerships,” our process starts and ends with our knowledgeable team of professionals. We can provide program options tailored to your needs and goals, saving you time and stress.
Program Reviews: Specializing in retirement plans for business owners, we can review your current program to identify gaps, cost inefficiencies, outdated features, or suboptimal investment options.
Forecasting and Scenario Analysis: Forecasting of different plan scenarios can help you clearly evaluate and compare the various benefits, pricing, and requirements offered by different retirement plans.
Switching Plans: Changing plans is a significant undertaking, and can be complex to attempt alone. Our advisors help to streamline and guide you through the process, making the transition as smooth as possible.
In addition to guiding you through retirement planning for you and your employees, we help you navigate various financial decisions and strategies, such as securing your personal wealth goals, exiting your company, and succession planning. Contact our team to learn how we can support you in achieving your business and personal goals.
Sources:
Investopedia. “Only One-Third of Small Businesses Offer Employees Retirement Plans.” 2023. https://www.investopedia.com/only-a-third-of-small-businesses-offer-retirement-plans-7497113#:~:text=Americans%20Have%20At%20Least%20120,to%20the%20Investment%20Company%20Institute
Fidelity. “Fidelity Study: Despite Concerns About the Future, Two-Thirds of Small Businesses Do Not Currently Offer Retirement Savings Benefits.” 2023. https://newsroom.fidelity.com/pressreleases/fidelity-study--despite-concerns-about-the-future--two-thirds-of-small-businesses-do-not-currently-o/s/72432825-233e-4a33-a470-3bed305b2f04
Penelope. “States With Retirement Plan Mandates: Guide for Small Businesses.” 2024. https://penelope.co/blog/states-with-retirement-plan-mandates#:~:text=While%20the%20number%20of%20states%20that%20already,Public%20Policy%20Center%20for%20Retirement%20Initiatives%20(CRI)
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