Becoming a retirement plan sponsor for your employees is arguably the most important supplemental income benefit you can provide them apart from, of course, their salary. So many of us, at some point in our lives, have worked for companies that provide these benefits that it seems like a nearly rudimentary option. However, it is also perhaps fair to say that very few of us have ever taken the lead in establishing such a program for a company. However, if you’re a small- or medium-sized business owner, this is a question you’ll be facing sooner than later. Employer sponsored retirement plans add value to your company, not just for the benefit of employees. Whether you are soon to be opening your doors or you are considering adding a 401(k) option to your compensation package, with some careful planning you can roll out a great retirement program that can lift your company profile and your employees’ spirits.
Employer Matching With Employer Sponsored Retirement Plans or Not?
As a business manager, you know the trajectory of your company’s growth, present liquidity, and operations expenses. Supplementing a cash match percentage to each employee’s contribution is a great offer and will help them accelerate the rate at which they are saving for retirement. However, it is a considerable budget expense. Large companies routinely offer to match from 3% to 10% of employee contributions, but that doesn’t mean you need to. The employer sponsored retirement plan alone is a win, and you can always add the bonus provision in the future at a time that makes the most sense.
The size of your company isn’t a worry. A financial expert who is an expert in small- and medium-sized enterprises can help you look over your entire budget and determine if an employer match is possible for you. It is crucial, however, to identify the right advisory firm for your needs. Review firms that provide transparency and have in place the fiduciary checks and balances necessary to qualify investment products in the program as retirement grade. Look for a firm that creates retirement plan programs for companies of all sizes. Whether you are an individual proprietor or have hundreds of employees who will participate, you will get to review several offerings until you find a package that best suits the needs of your company and its employees.
Fiduciary Duties
Probably the most important consideration before offering benefits plans to your employees is to become familiar with ERISA laws and fiduciary responsibility. ERISA means the “Employee Retirement Income Securities Act” and stipulates by law certain duties of care that, as an employer, you must follow with the implementation of an employer sponsored benefits plan.
For example, the law limits what fees advisors can charge on retirement accounts. As you can imagine, it restricts higher-risk or volatile asset types from the selection and the maximum percentage of each paycheck that can be invested. A plan advisor can guide you through how to disseminate all the necessary information to your employees and ensure you are ERISA compliant.
Ranking Investment Product and Performance
Choosing a great plan advisor means having one that will ensure your company is gaining the best value for the cost of administering the plan. That means that the funds available for investing will be appropriately benchmarked to market activity. It also means that the track record of each fund will be visible and easy to understand, not just the investment strategy and proforma. Fund manager and administrative fees will be transparent, and they will send performance statements regularly.
A good advisor will only work with capital managers that have a reasonable divestiture period and redemption process when needed. You also should strive to hire an advisor that has the means to make multiple quantitative and qualitative measurements of plan cost vs. benefit to other companies and the broader retirement products industry.
An Independent Plan Advisor
Similar investment strategies are generally available with funds at multiple companies. Several brokers sell target-date funds, for example. RPAG member advisors remain independent of single fund managers, which gives them power to make investment recommendations that are in the best interest of your company.
SD Mayer has CPAs, CFPs, and staff with a minimum of 10 years’ experience with setting up employee sponsored benefits plans. They are standing by to assist you in making the right decisions the first time and remove the hassle from establishing this key HR benefit at your company.
SD Mayer will also be presenting at the upcoming Small Business Expo in San Francisco. We will be hosting a session on “Financial Planning for You and Your Staff” and the expo offers a plethora of great resources for business owners. You can register now for free.
At SD Mayer, we help small- and medium-sized business owners take a holistic approach to financial management. You have a lot of weight on your shoulders as an employer, and we know that you want to do the best you can on behalf of your employees. We will sit down with you and help you determine the best possible option for offering employer sponsored retirement plans to your hardworking employees. Contact us today to get started.
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DISCLAIMER:
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. The services of an appropriate professional should be sought regarding your individual situation.
