Choosing and Managing Retirement Plans for Your Employees

Offering a retirement plan is one of the most meaningful benefits you can provide to your team. It signals that you care about employees’ long‑term well‑being and positions your company as an employer of choice. National 401(k) Day invites both employers and employees to take stock of their retirement strategies[2]—a perfect catalyst for small‑business owners to evaluate their plan offerings or to start a plan if they haven’t already.

The Business Case for Retirement Plans

Retirement plans do more than help employees save; they enhance your business in several ways:

·       Recruitment and retention. In competitive labor markets, benefits are often the deciding factor for prospective hires. A robust retirement plan helps you attract experienced professionals and reduce turnover.

·       Tax benefits. Employer contributions are generally deductible. Businesses with fewer than 100 employees might qualify for tax credits for start‑up costs and employer contributions. Employees enjoy pre‑tax or tax‑deferred savings, which increases the perceived value of their compensation.

·       Improved financial wellness. When employees are confident about their retirement savings, they’re less likely to experience financial stress at work. Studies show that financially secure employees are more productive and engaged.

Understanding Plan Types

SEP‑IRA

Who it suits: Sole proprietors or small businesses with a handful of employees. Contribution flexibility makes it ideal for companies with varying cash flow.

Contribution limits: Employers can contribute up to 25 percent of each eligible employee’s compensation (limited by annual IRS caps). Employees can’t contribute separately.

Pros: Easy to set up, low administrative burden, contributions are discretionary each year.

Cons: The percentage of compensation contributed must be the same for all eligible employees, including the owner.

SIMPLE IRA

Who it suits: Businesses with 100 or fewer employees who want to offer a plan with minimal paperwork.

Contribution structure: Employees can make salary‑deferral contributions; employers must either match employee contributions up to 3 percent of compensation or make a 2 percent non‑elective contribution for all eligible employees.

Pros: No annual filing requirement and lower administrative costs than a 401(k).

Cons: Lower contribution limits than 401(k)s and mandatory employer contributions.

Traditional or Safe Harbor 401(k)

Who it suits: Businesses that want to provide higher contribution limits and more plan design flexibility.

Contribution structure: Employees can defer significant amounts (with catch‑up contributions for those age 50 and older). Employers may choose to match contributions or provide a profit‑sharing component. Safe Harbor plans require specific employer contributions but simplify compliance testing.

Pros: Higher savings potential, optional Roth features, and loan provisions. Safe Harbor plans prevent failed nondiscrimination tests.

Cons: Higher administrative costs and annual IRS filings. Safe Harbor employer contributions are mandatory and immediately vested.

Best Practices for Plan Management

• Analyze your workforce. Consider the size, demographics and compensation levels of your team. Younger workforces may appreciate Roth options and investment education, while older workers may prioritize catch‑up contributions and low‑risk investment options.

• Educate and engage employees. Host lunch‑and‑learn sessions around National 401(k) Day to explain how retirement plans work[2]. Provide calculators that show the impact of increasing contributions by a few percentage points.

• Review fees and investments. Excessive fees erode retirement savings. Compare record‑keepers and fund expense ratios. Consider target‑date funds for a simplified investment option.

• Implement automatic features. Automatic enrollment typically boosts participation rates above 90 percent. Automatic escalation increases employee contributions over time, fostering better savings habits without overwhelming them.

• Monitor compliance. 401(k) plans require annual nondiscrimination testing to ensure contributions don’t disproportionately favor highly compensated employees. Working with a third‑party administrator or an advisor like Western Reserve Consulting reduces the risk of failing these tests.

A Success Story

A local manufacturing company with 30 employees offered a SIMPLE IRA for years. Participation stagnated at around 50 percent, and many employees were not saving enough to reach retirement goals. After consulting WRC, the company transitioned to a Safe Harbor 401(k) plan with auto‑enrollment and a 3 percent employer match. Within a year, participation climbed to 92 percent and employee satisfaction scores increased. The owner appreciated the tax deductions, and the plan’s flexibility allowed for additional profit‑sharing contributions in profitable years.

This September, take time to review your retirement offerings. The right plan doesn’t just help employees—it strengthens your company’s culture and financial health.