Higher Morale at Small Businesses with Pension Plans
SAN RAMON, Calif. — Many small-business owners might think they have enough headaches meeting payroll, dealing with government regulations and pleasing their customers. And setting up a retirement plan for their employees is more work – and expense – they can do without.
But creating such a plan is more feasible than they may realize and comes with benefits for a small business and its owner, says Andrew Denney, founder and CEO of Prosperity Financial Group.
Denney has more than 13 years’ experience in finance and advises his clients on retirement planning, asset protection, estate planning and wealth management.
“I’ve worked with some employee retirement plans where there was in excess of $500 million in the plan,” Denney says. “At the other end, I’ve seen businesses with as few as 10 employees set up a plan.” Yet small businesses tend to forgo retirement plans.
For example, only 22% of workers at firms with fewer than 10 employees report having access to a workplace savings plan or pension compared with 74% percent at firms with 500 or more, says a Pew Charitable Trusts report.
Employee-sponsored 401(k) and IRA plans are among the more popular options for businesses that offer a retirement benefit. Those savings plans allow the employees to contribute routinely in their accounts, their contributions deducted from their paychecks.
Because 401(k)s and IRAs are tax-deferred retirement plans, employees see a lower income-tax bill when they file. Some employers also offer a company match, up to 3%, which helps their accounts grow faster.
The business owners as well as their employees benefit, Denney says, citing:
- Employee recruiting and retention. Any business wants to hang onto good employees and offering a retirement plan helps do that. They’ll be happier knowing they’re more likely to have greater financial security when they retire. A retirement benefit also serves as a recruiting tool. Imagine a job candidate who’s weighing similar offers from two businesses, Denney says, but one company has a retirement plan and the other doesn’t. “It separates you from the pack,” he says.
- A lower tax bill for the owner. The business could reduce its tax burden because its contributions to the retirement plan are tax deductible. In some cases, the businesses might qualify for a tax credit to help offset the cost of starting the plan, according to the IRS.
- An opportunity for the owner to invest in his own retirement. Like their employees, few small-business owners intend to die at their desk and need to set aside money for their own retirements. They’ll enjoy the same tax-deferred benefits the employees do as they build that nest egg.
“It’s worthwhile for a small business owner to investigate whether an employee retirement plan is more attainable than they might realize,” Denney says. “A financial professional with experience in setting up such plans can explain to them the advantages and disadvantages, and suggest which plan would work best for their situation.”
SOURCE: Prosperity Financial Group.
Copyright 2023 The Business Journal, Youngstown, Ohio.