5 Reasons to Offer Retirement Benefits
With approximately 99% of companies in America having 500 employees or fewer, small businesses truly are the backbone of the U.S. economy, helping it to maintain its status as the largest in the world. In much the same way, small businesses often serve as the bridge to a successful retirement for the majority of Americans who hope to enjoy their golden years with more free time on their hands.
However, whether due to poor planning or an inability to put adequate amounts of money away for later use, a significant segment of the public isn’t so sure they’ll be able to retire when they reach their late 60s and 70s, according to recent polling.
An estimated 41% of respondents in a newly released Gallup survey say they do not expect to be able to retire comfortably, opting instead to stay in the workforce to maintain their costs of living. This compares to 57% of non-retired Americans who do anticipate the ability to stop working, presumably living off their savings or they’re income via pension.
While there’s no immediate risk of Social Security becoming insolvent, many fear that it could reach the breaking point once contributors are eligible to start collecting. Their anxiety over such a scenario is not in vain, largely because there aren’t as many people paying in to the program as there are collecting when it began in the mid-1930s. Back then, the ratio between worker and retiree was 159 to 1, according to estimates from the SSA. Fast forward to today, the ratio is 2.8 to 1. With fewer people paying into the system, many Americans are justified in their concern that they won’t be able to take advantage of the benefits they’ve accrued, a feeling shared by 42% of adults ages 18 and over in separate polling done by the Pew Research Center.
As a small-business owner, you may serve as the linchpin to helping your workers realize their retirement dreams. Here are a few reasons why you may want to consider offering a retirement plan, such as a 401(k), or 403(b), to all those hard working employees who qualify.
1. Small businesses can do it
Whether due to their limited number of workers or or lack of knowledge around how their offerings will be funded, many small businesses defer on retirement benefits, leaving them out of their benefit offerings altogether. Some wonder if they are eligible to make them available even if they had the financial means.
Regardless of size, virtually all employers can offer retirement benefits, even those who are self-employed or have fewer than a dozen people on staff. Additionally, if you decide to match the percentage of earnings employees devote to their retirement, the contributions are tax deductible, thereby lowering your tax liability. Similarly, the same rule applies to your staff - what they contribute is tax free.
2. Funding is simple
Another mischaracterization of employee benefit offerings is the belief that employers need to have a large amount of cash flow to get a 401(k) plan up and running. In reality, employers aren’t required to match their employees’ contributions. Aside from that, the program itself is funded through payroll deductions. In other words, while you’re sponsoring the plan, employees fund it themselves by devoting a portion of their earnings that would otherwise go directly to their bank accounts.
3. Can enhance retention
There are currently more open jobs than workers who can fill them, according to the most recent statistics available from the Bureau of Labor Statistics. In these scenarios, so-called “job hopping” increases in prevalence, when workers are constantly on the hunt for a new position in order to advance their careers more quickly. A high turnover rate can be problematic for business owners looking to maintain consistency and establish themselves as a good place to work to new hires or those who are on the job hunt.
You can improve retention through retirement benefit offerings, as they’re routinely viewed as among the most popular benefits provided by companies of all sizes. According to polling done by Glassdoor, 90% of millennials - meaning those who entered adulthood in the early 21st century - prefer benefit offerings like 401(k)s over higher compensation. Millennials currently represent the largest generation in the country, according to the most recent Census. Slightly more than 25% of Americans are millennials and account for the largest number of individuals in the workforce.
4. Small contributions add up quickly
It can be difficult for people to put a portion of their paycheck toward retirement planning when that money could go toward paying off bills and other financial considerations. Less than $100 a month, however, can become many times that thanks to compound interest. As noted by the IRS, apportioning as little as $50 per month to retirement account can add up to over $3,500 five years later with an interest rate of 6%. There’s a fourfold increase in that amount 10 years later to $14,614 and more than $23,218 five years after that.
Naturally, the more that they contribute now, the greater the reward later on.
5. 401(k) providers offer affordable plans
While the money that workers devote to their accounts is money they’ve earned, 401(k) plans must first be purchased from companies that sell them. Those that opt not to make such benefits available often point to the fees as the reason why. But as noted by CNBC contributor Stuart Robertson, many providers offer plan pricing to accommodate just about every budget, Administration fees, for example, can be as little as $1,000 a year, depending on how many employees participate. Additionally, you can potentially take advantage of tax credits the federal government makes available.
Make 2020 the year you resolve to solve your employees’ retirement concerns: The advantages are priceless and can literally last a lifetime.