Any size business can offer its employees a 401(k) retirement plan, even a sole proprietorship. However, not all plans are managed well, and no one wants to watch their hard-earned savings disappear.

Many small companies have thus far avoided offering retirement plans as they’re typically costly and difficult to administer. But offering a 401(k) has huge advantages for both the owner and the staff, especially if you partner with a skilled and experienced advisor who has your best interests at heart. 

What’s the best way to approach setting up and managing a retirement plan for your SMB that will add value to your company and encourage your people to invest in their future? Let’s explore.

The basics

In the past, most firms offered their employees a pension plan, where a worker would receive a set income during retirement, based on their tenure at the company. The first pension plans go back to ancient Rome, where soldiers were guaranteed a certain yearly income after their terms of service were completed. 

Pensions are becoming much less common as employers move to tax-deferred, defined contribution plans like a 401(k), which were originally designed to act as a supplement for traditional pension plans. 

If you’re not super familiar with the term, 401(k)s are named after the section of the IRS code establishing that elective salary deferrals are excluded from the employee’s taxable income. These pre-tax deductions, along with contributions from the employer, are then invested into various funds to hopefully grow into an impressive retirement nest egg.

Effortless auto-enrollment and employer matching contributions get workers motivated to increase their financial literacy and to save towards a goal.

Why offer a retirement plan?

In the current employment environment, people want to work for organizations that offer them a significant increase in income or benefits — Gallup states that 64% of Americans say this is their  #1 priority

Competitive pay and perks are crucial to attracting and retaining top talent. It’s expensive to replace an employee, especially if they were in a management position. Investing in a 401(k) plan shows your workers that you truly value them, which increases loyalty and productivity.

There’s also a tax incentive for small businesses setting up a first-time 401(k) plan. The SECURE Act of 2019 increased the tax credit available for qualified setup and administrative costs associated with starting up a retirement plan. 

IRS-approved costs also include employee education regarding their plan participation, and there’s an additional break for adding an automatic enrollment feature. Employer distributions to the plan and profit-sharing contributions are also tax-deductible

The importance of personalization

Unfortunately, to be successful, a 401(k) has to be managed appropriately. Most people wish they could just set it and forget it, but even with the best investing software, nothing beats real-world knowledge and experience.

Cookie-cutter and robo-managed retirement strategies can cause your retirement fund to dwindle rapidly, especially in a volatile market. To get the most out of your 401(k) and give your employees something to really celebrate, you should look for a plan that offers a high level of personalization. 

People have different values and they should be able to customize their investments to better suit what they believe in. Millennial workers specifically search for opportunities to send their money towards environmental, social, or governance-related funds.

Younger staff should have the chance to build an investment portfolio that’s more aggressive since they have a longer time to earn before retirement. They may have no interest at all in traditionally well-performing defensive stocks like utilities, foods, or tobacco, preferring instead to invest in fashion, technology, or bioscience. 

Making investing more accessible

More people are financially literate these days than ever before thanks to online banking apps and investment software right on your smartphone. But those platforms can only do so much, and they’re not equipped to handle a successful tax-advantaged retirement fund. 

An experienced, compassionate financial advisor will offer unique insight and a holistic approach to jumpstart your 401(k)’s growth potential far more effectively than a robot or a multinational corporation can.

Small business owners have previously been reluctant to participate in 401(k)s due to the exorbitant administrative fees and lack of personalization. But they’re missing out on a crucial and now cost-effective way to build employee satisfaction, receive tax credits, and reach financial goals.

Working with a dedicated retirement planner can also help those who are self-employed allocate their assets more strategically. There’s no time like the present for small business owners to set up a 401(k) and enjoy an affordable customized investment strategy with individualized service. 

If you’re interested in creating a plan for yourself and your small business, I’d love to help. Reach out today!