This article was co-written by Blake Faust, Retirement Plan Services Leader at Wipfli Financial Advisors, LLC.
Are you considering implementing a retirement plan for your business?
Starting the process can be overwhelming. There are quite a few plan options to choose from — and even more ways to design your plan. Starting off on the right foot is crucial.
With that in mind, here are five things every business owner should know about implementing a retirement plan:
1. Retirement plans offer a lot more benefits than you might think
Retirement plans benefit employees, the business owner(s) and the business itself.
It not only helps employees set aside much-needed funds for retirement but also acts as a recruiting and retention tool. In today’s tight labor market, you need a full, competitive benefits package that rewards your employees and encourages them to stay with your company. A retirement plan is an essential and expected part of this package.
Business owners also benefit. Depending on the type of retirement plan you implement, you have a great opportunity to invest significant amounts of money into a tax-deductible plan. For example, a 401(k) plan allows the business owner to contribute up to $19,500 (plus catch-up contributions if over age 50) and additional matching and/or non-elective contributions, up to a total of $58,000 a year.
Read more: How to choose a retirement plan for your small business
Your business also benefits from implementing a retirement plan. Making employer contributions to employee accounts enables the business to take tax deductions. Certain retirement plans also allow you to increase the employer contribution during years the business is performing well — to increase tax deductions and further reward employees — and to decrease the contribution during other years. This was especially helpful for businesses during the COVID-19 pandemic, where some industries and businesses struggled while others flourished.
Additionally, the tax credits your business can receive for implementing a brand-new retirement plan can greatly help offset setup and other administrative expenses.
2. You can’t over-plan when selecting and implementing your retirement plan
Once you’ve decided to implement a company retirement plan, your first step is to determine your goals and objectives. Is your goal to reward employees? Recruit and retain top talent? Maximize your savings as the business owner? Your goals will directly determine which type of retirement plan will work best for you.
You should also take into account your employee demographics so you can set the right eligibility criteria. For example, if you have high turnover, you may want to set eligibility at a higher standard (e.g., employees have to have worked at the business for at least 12 months to start receiving employer contributions) to reduce the burden on your business of having to frequently redistribute employer contributions due to departing staff.
When choosing a plan, don’t forget about your other systems and vendors. Does your plan provider integrate with your payroll provider? Does your payroll provider understand your plan to the level necessary to operate it appropriately? Whose responsibility will it be to notify employees of their eligibility, educate them on the plan and get them enrolled in a timely manner?
All plans are unique, and payroll generally will be the most closely involved in setting up the retirement plan and ensuring it’s operating appropriately. They must be properly trained in how to operate the plan, what the definitions of the plan are (e.g., compensation, eligibility, the employee and employer contribution formulas, etc.), and what the process is for transitioning duties if someone leaves the business so there is no interruption.
3. Automate what processes you can
Automation is a great way to reduce the burden of operating a retirement plan on your staff. Ask your payroll provider if they have existing processes in place to work with the retirement plan provider you’ve selected. Ask your plan provider if they’ve worked with your payroll provider in the past so you can further understand what types of integrations you can set up to reduce manual processes.
Your retirement plan itself can also have automated features, such as allowing employees to set up automatic increases in employee contributions on an annual basis.
4. Communicate thoroughly with employees about the retirement plan
For legal reasons, your business must understand what notices need to go out to employees informing them of the plan and by what date. If you’re changing to a different type of plan or changing providers, there could also be different rules about when you can make the transition, as well as by what date you need to inform employees.
Regardless of whether you’re transitioning a plan or implementing one for the first time, we recommend providing education sessions to employees so they can learn more about the benefit, ask questions and understand their options. You don’t want them to miss deadlines or enroll in a suboptimal way for their situation because of confusion or a lack of education.
5. Work with the right providers from the start
Working with the right providers is a great way to reduce the burden of selecting, designing and implementing a retirement plan. They can help you not only navigate your business’s responsibilities but also avoid common pitfalls. They’ll also provide expertise in everything from designing the plan correctly to selecting investments to helping you meet fiduciary requirements to providing ongoing administration.
While it may be tempting to go with the lowest cost provider or someone that will “add on 401(k)” to their services, often you will be left figuring out all of the above on your own. A true provider can deliver guidelines and best practices. They can train your staff on their responsibilities. They can provide valuable education to employees. And they can help make sure you’re meeting all your legal and fiduciary responsibilities.
Wipfli and Wipfli Financial Advisors can help
Working together, Wipfli and our affiliate Wipfli Financial can help you identify your goals for your business’s retirement plan, walk you through your options and help you select the right plan. Our Wipfli team further assists with designing the plan, creating the plan document, complying with the plan provisions and providing third-party administration services for 401(k) plans. Wipfli Financial helps you develop your investment lineup, take on fiduciary responsibilities and provide participant education.
Together, we help you make educated decisions from the very start. We can also help take the pain out of plan conversions or changing plan providers.
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Wipfli Financial Advisors, LLC (“Wipfli Financial”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC); however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Wipfli Financial is a proud affiliate of Wipfli LLP, a national accounting and consulting firm. Information pertaining to Wipfli Financial’s management, operations, services, fees and conflicts of interest is set forth in Wipfli Financial’s current Form ADV Part 2A brochure and Form CRS, copies of which are available from Wipfli Financial upon request at no cost or at www.adviserinfo.sec.gov. Wipfli Financial does not provide tax, accounting or legal services.
Wipfli LLP and Wipfli Financial, although affiliated companies, are separate entities.