How can small businesses offer competitive employee benefits and level the playing field with larger corporations?
Luckily, the answer is simple: offer a competitive retirement package for yourself and your employees.
Newer laws and greater flexibility in the retirement account code has made it easier than ever for small businesses to offer competitive 401(k) retirement packages. Such plans allow for pre-tax investment earnings to be sheltered and grow while (and even after departure) employees remain at the company.
Here are 10 reasons why small business 401(k) plans can greatly benefit your small business:
1. 401(k) Benefit Plans Can Help Attract Top Talent
Regardless of whether you own a technology company or bakery shop, every businesses owner knows how difficult it can be to find, hire and retain top talent. Doing so often requires more features built-in to your employee incentive package. By offering a 401(k) your small business will better be positioned to compete with local companies for employees and top talent.
2. Tax Shelter Your Funds
Without a 401(k) any investments are subject to capital gains rate taxes. By including pre-tax money into an investment vehicle employers and employees alike are able to benefit by avoiding tax burdens as the account value grows over time.
Thanks to the time value of money, account values in a taxed environment vs. a non-taxed environment and the lifetime fund values are so significant it will make nearly every small business owner a believer in the need for a tax-advantaged small business 401(k).
3. Make Pre-Tax Bonus Contributions
In addition to general pre-tax contributions, entrepreneurs will also find significant incentive benefit from performance and matching contributions. When you give either performance or match contributions to the plan it is done pre-tax.
While there are annual limits to how much can be contributed, such a plan has significant upside for both employee and employer as both parties are able to save significantly on present tax burdens.
4. Deflect Fiduciary Responsibility and Liability
A typical 401(k) plan for a large organization requires that the business take on the fiduciary liability for all contributors to the plan. Typically this includes submitting regular annual reports to the IRS and SEC, depending on the size of your business. Thanks to changes in the law and improvement in the technology today’s plan allows even the local dentist to outsource fiduciary liability to the fund manager.
5. Leverage the benefits of Greater Support
Despite popular belief, when you relinquish fiduciary responsibility for your plan and allow for a full-fledged mutual fund, you actually get an increased level of support.
Because fiduciary responsibility is shifted to the account owner, it also means much more granular support is required on the employee level. Most small business plans now operate 24/7 support lines to help assist the smaller, more difficult to manage entrepreneurial businesses.