WHITE PAPER. Hidden Benefits of a 401(k) That Small Business Owners Need to Know

Transcription

1 WHITE PAPER Hidden Benefits of a 401(k) That Small Business Owners Need to Know

2 INTRODUCTION Planning for a comfortable retirement is a major concern among American workers, particularly Baby Boomer and Generation X employees, who have only years before they hope to exit the workforce. But for many, the dream of leaving behind a 9-to-5 job for a life of relaxation is still far off, as a volatile stock market and low returns on money market funds have chipped away at their confidence. In fact, only 22 percent of respondents said they were very confident of a financially comfortable retirement in a survey conducted by the Employee Benefit Research Institute, with 24 percent saying they were not at all confident about their retirement future. 1 Workers who do have financial provisions in place often have built their nest egg using their employer s 401(k) plan. Nearly 80 percent of Americans employed full-time have access to an employer-sponsored retirement plan, making it an invaluable tool for shaping the financial security of our country s workforce. Even so, investing in new systems and expanding employee benefits are not decisions that come lightly to small and mid-size businesses (SMBs), and adding a retirement plan often is not top-of-mind for employers. What s more, many executives are under the impression that a 401(k) plan is expensive to set up and hard to administer, making them reticent to explore the options. In reality, though, offering a 401(k) can provide numerous benefits to SMBs, including the ability to recruit quality talent, improve employee retention, and reduce the tax liability for the business while providing peace of mind for plan participants. A DREAM DEFERRED Living out one s golden years on the beach, at the golf course, or aboard a luxury cruise ship is part of the American dream for millions of workers. Surprisingly few, however, have the necessary means set aside to make that dream a reality. A mere 60 percent of Baby Boomers have put away money toward retirement 2 meaning four out of 10 have no retirement savings and 36 percent of Boomers plan to rely on Social Security as their main income source after they leave the workforce. 3 Small and mid-size businesses can have a profound impact on the retirement readiness of their workers by incorporating a 401(k) plan into their employee benefits package. Executives frequently can be reluctant to explore the possibility of a 401(k) for their organization, because 1 How Confident Do Americans Feel About Retirement? [Infographic], Forbes.com, April 22, Boomer Expectations for Retirement 2015: Fifth Annual Update on the Retirement Preparedness of the Boomer Generation, Insured Retirement Institute, April Five Frightening Retirement Statistics that Demonstrate Baby Boomers Are in Serious Trouble, The Motley Fool, April 19,

3 of the presumed expense and the burden of management. However, an employer-sponsored retirement plan not only offers employees a valuable tool to save for the future, but it also offers numerous advantages for plan sponsors. RECRUITING AND RETENTION The primary benefit to establishing a company 401(k) plan is to attract and retain quality talent for the firm. A company benefits package is among the foremost considerations of highly qualified talent when searching for a new position. Offering a 401(k) plan with a matching employer contribution can set a small or mid-size company apart from the competition, and make exceptional candidates more likely to accept a job offer. More than 75% of new hires at companies with 401(k) plans say the retirement program gives them a compelling reason to stay with the company. Source: Retirement Planning in a Post-Crisis Economy, Towers Watson, January Likewise, valued employees are more likely to stay with a company that they feel has their best interests at heart and is helping them to achieve their financial goals. In its annual study of employee trends, MetLife found that retirement benefits were among the top three factors driving employee loyalty for small businesses, following salary and health coverage. 4 And since employee retention keeps recruiting and training costs down, offering a company 401(k) can have a positive impact on the bottom line. Providing an employer-sponsored retirement plan also offers several additional benefits for SMBs, including: Tax savings Employer matching contributions (up to applicable limits) are taxdeductible. Owner participation Plan participants can contribute up to $18,000 of their pre-tax income in 2015, giving business owners the opportunity to benefit from the same tax advantages as their employees. Tax credit Small businesses with fewer than 100 employees can claim a federal tax credit of $500/year for the first three years of an employer-sponsored 401(k), which can offset administration costs. Even if only a handful of employees choose to participate in the 401(k), the tax savings to a small business can be significant and provide a compelling reason to add a retirement plan to the company s benefits package. 4 Why Small Firms Should Consider Setting up 401(k)s, Charles Passy, Wall Street Journal, September 30,

4 THE RIGHT PARTNER Although a 401(k) can offer significant benefits to an SMB, annual compliance testing, payroll contribution deadlines and employee education can seem like insurmountable hurdles for a modest-sized venture. The right partner can act as the fiduciary recordkeeper and manage all aspects of the 401(k) plan, from implementation to ongoing administration, and free up internal staff to stay focused on core business functions. For example, BenefitMall, an employee benefits provider Tax savings may be 3.5x greater than plan costs for firms with <10 employees. Source: com/401k-tax-benefits.aspx headquartered in Dallas, TX, offers a range of innovative 401(k) plans through its partnership with the financial services firm PAi to meet the unique needs of small and mid-size firms. Because BenefitMall is a leading provider of outsourced payroll administration services, the company is able to integrate payroll and 401(k) plan administration using the same system, making it faster and easier to manage both. Integration not only eliminates the manual labor required to align both functions, but also enhances compliance by automating critical processes and reducing the risk of manual errors and inconsistencies. An integrated system makes it easier for plan participants to make changes on their own, as well, and can motivate them to take action toward their retirement planning. In addition, most 401(k) plans are covered under the Employee Retirement Income Security Act (ERISA) and carry a strict set of fiduciary responsibilities. While small business owners and managers need to ensure they have a firm understanding of their fiduciary responsibility, an experienced financial advisor who understands the fiduciary landscape can help SMBs establish and maintain a successful 401(k). Firms can further reduce the fiduciary risk of a 401(k) plan by using a 3(38) Investment Manager to handle investment selection and monitoring, although the plan sponsor will still have fiduciary responsibility. ADVICE MATTERS Although implementing an employer-sponsored retirement plan can provide SMBs and their staff with a host of benefits, offering a 401(k) does not ensure that employees will have financial security once they leave the workforce. In fact, even though the vast majority of full-time workers have access to a retirement plan through their employer, nearly one-third of non-retired respondents in a Federal Reserve report claim they have nothing at all saved up for retirement Shocking Retirement Statistics, Retirement CheatSheet, Erika Rawes, January 15, 2015; personal-finance/5-shocking-retirement-statistics.html. 4

5 Why aren t they participating? Simply put, having access to a 401(k) plan without hands-on guidance can be overwhelming for many people, who may become paralyzed by the number of investment options. Working with a provider that offers personalized participant advice can help employers ensure workers get the maximum Part of the plan sponsor s benefit from the plan offering, with improved savings rates and fiduciary responsibility is to a more disciplined investment approach. 6 For example, the seek council from experts 401(k) solutions offered by BenefitMall and PAi include a host to help guide the plan, since of online education tools and resources, as well as support very few small businesses from knowledgeable, dedicated investment counselors who have deep knowledge can help participants design an appropriate asset allocation about retirement plans. for their individual goals and level of risk tolerance. Research shows that employer-sponsored retirement plan participants who received professional guidance about their investment decisions experienced better long-term results on their retirement investments than those who did not. 7 By working with an outsourced payroll service provider that also offers expert guidance for 401(k) planning, small businesses can take advantage of big business solutions to improve operational efficiency and give employees a valuable tool to secure their financial future. Through its partnership with PAi, BenefitMall offers flexible and affordable retirement planning options that seamlessly integrate the set-up and administration of an employer-sponsored 401(k) with its signature service and payroll products. CONCLUSION Small businesses can realize numerous benefits by implementing a 401(k) plan, furthering the financial goals of their employees as well as the company owners. In addition to attracting quality talent, giving valued employees a compelling reason to stay, and providing a tax credit for the business, an employer-sponsored 401(k) plan can help participants prepare financially for the future while growing their savings tax-free until they make withdrawals in retirement. Plan sponsors can realize even greater cost efficiencies when they integrate their 401(k) plan administration with payroll processing, and can streamline operations by outsourcing to a knowledgeable and experienced provider capable of managing both functions while providing exceptional customer support. 6 The New Rules of Engagement for 401(k) Success, Charles Schwab, Help in Defined Contribution Plans: Is It Working and for Whom, Financial Engines and Hewitt Associates, January

6 ABOUT BENEFITMALL BenefitMall is a national provider of employee benefits, payroll, HR and employer services. Headquartered in Dallas and founded in 1979, BenefitMall works with a network of more than 20,000 brokers and CPAs to deliver payroll, HR and employee benefits to more than 200,000 small and medium-sized businesses. Combining efforts with our Trusted Advisors, we help employers identify and provide the best benefits solutions for their employees, ranging from medical and dental plans to accurate and timely payroll. We serve as a single source for your payroll and benefit data management and provide the additional security of easier health care compliance. Our knowledgeable and innovative employees are respected in their industries for providing legendary customer service and building extraordinary relationships. We partner, serve and deliver value to: Brokers by providing leading products, tools and knowledge enabling them to design comprehensive benefits packages for small to medium-sized employers. Accounting Professionals by delivering accurate and timely payroll to their clients. Carriers by providing the nation s largest General Agency distribution. Businesses Owners by delivering the nation s largest portfolio of benefit and payroll products and services supported by a network of trusted advisors and designed to support health care compliance. For more information about our products and services, visit BenefitMall. All rights reserved. BenefitMall, the BenefitMall Logo, the BenefitMall ALL TOGETHER, BETTER Logo, the ALL Logo, ALL TOGETHER, BETTER, and CompuPay are trademarks or registered trademarks of Centerstone Insurance and Financial Services, Inc. d/b/a BenefitMall or its affiliates in the U.S. California License #

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