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Today, half of the American workforce does not have access to or participate in an employer-sponsored retirement program. Additionally, a quarter of all Americans have no retirement savings, which contributes significantly to the overall savings gap in the United States.
I firmly believe that small businesses are the catalyst for significant change to close this gap. An AARP survey shows that Americans are 15 times more likely to save for retirement when they can do so at work. They are 20 times more likely if the program is automatic. When employees face financial difficulties, they are naturally more likely to be distracted at work. With increasing state mandates requiring businesses of varying sizes to implement a workplace savings plan, it’s important for small businesses to understand their options.
There’s a lot to consider before setting up an employer-sponsored retirement plan. Typically, employers consider several factors, including overall business goals, number of employees, and whether you want to offer a match. After setting up an employer-sponsored retirement plan, consider working with a financial advisor to evaluate the best options for your unique business and ensure that all employees are engaged and maximizing their benefits. After all, the main reason for setting up these plans is to benefit your employees.
Whether you’re a business owner operating in a state whose deadline has just passed or you want to get ahead of upcoming deadlines in the years to come, these programs allow small businesses to provide an affordable solution to their employed in several ways.
Related: The Easiest Ways to Support Your Employees’ Retirement Future
1. Consider a government savings program
In recent years, state governments have begun to address the savings gap within their own communities by creating a state-facilitated retirement savings program focused on supporting small businesses. Currently, 46 of the 50 states either have a state program in place or are in talks to adopt one. According to a recent report by Pew Charitable Trusts, many respondents “welcomed the advent of auto-IRAs in their state, said they saw the offer of retirement benefits as a way to attract and retain workers, and 67% of those who supported self-IRAs simply said such a program would “help my employees.”
Public retirement savings programs are often one of the most cost-effective options on the market for small businesses. Employers benefit from a solution with no reimbursable costs such as program, administration or investment fees. These savings programs are typically set up as self-directed IRAs, which allow employees to contribute after-tax dollars through automatic, voluntary payroll deductions. There are also no employer matching requirements for this plan, which often makes it a more affordable option for small businesses.
If you’re looking to meet your state’s mandate and looking for a quick and affordable solution, a self-IRA could be a great choice for your business. The employer’s responsibilities are limited to enrolling in the program, adding employee information, and remitting contributions each pay cycle. Keep in mind that while there is no setup fee, employers may pay additional fees elsewhere, such as payroll companies, accountants, or other service providers to facilitate the program.
Related: The Basics of Employee Benefits
2. Personalize your workplace pension plan
The rise of government programs and new legislation in the sector is driving the rise of fintechs capable of offering affordable retirement savings plans to small businesses. A major misconception about these new state programs is that companies must offer the state program to their employees. In reality, to comply with these mandates, a company (usually with five or more employees) must facilitate the state program or start a retirement plan with an independent provider of its choice.
Over the past few years, a growing number of small businesses have benefited from affordable, flexible, and user-friendly workplace savings programs. While traditionally these companies have not been able to access 401(k) plans due to difficult operational procedures and exorbitant fees charged by traditional providers, the rise of new fintech companies is changing this outcome. . Fintechs based on modern technologies allow small businesses to offer an excellent workplace savings plan to their employees.
401(k) plans allow employers to be more involved in their plans and to personalize the way they serve their employees. By partnering with a fintech company, cutting-edge technology eliminates administrative costs, providing another very affordable solution for small businesses. When offering a 401(k), employers have greater flexibility than when offering a state-facilitated self-IRA plan. They have the flexibility to choose their own investments, have more control over business matching and eligibility rules, and may even be eligible for tax incentives. 401(k) plans also allow larger contributions of $20,500 compared to IRAs which only allow deductions of up to $6,000 of income.
Related: Looking for Talent? Consider setting up a 401(k) to keep your small business in the market.
3. Beyond Retirement: Financial Wellness Programs
A big industry trend we’re seeing is the rise of financial wellness programs. Why? Nearly 43 million Americans (or 1 in 8 people) have federal student loan debt. Almost 60% of people cannot afford a $1,000 emergency. Closing the savings gap means we need to do more than retirement savings. An important way to support your employees is to consider offering a more comprehensive benefits package. Offering more than retirement also sets you apart from other employers for recruitment and retention purposes. 529 Education savings plans, emergency savings accounts, and health savings accounts are all great programs to further support your employees and enable them to save for the critical aspects of their lives: retirement, education and health.
No matter what state your business is in, there are plenty of options for small business owners who want to implement a workplace savings plan. Tax incentives, recruitment and retention benefits, and investing in your employees’ future are great reasons to explore your options today. Benefits should be an evolving conversation for small business employers. Setting up a self-IRA plan in your state might work better for your business today, and in a few years you might find a 401(k) more suitable.
Remember that your choice of workplace pension plan is not permanent. In most states, you will need to choose a retirement plan to meet program requirements, however, if you decide to switch lines, you will be able to. With the boom in fintech entering the space, new legislation, and evolving state mandate launches, now is the time for employers to implement a savings solution for their employees.
