Having employer retirement plans can be a smart strategy to protect one of your most valuable assets – your employees – while also benefiting you and your firm.
You take care of your employees as a business owner by paying them a wage, providing medical benefits, and providing paid vacation time. So, why not provide them with employer retirement plans that will benefit them both now and in the future? An employer retirement plan might even prove to be an effective tool for attracting and retaining valuable employees, as well as enabling them in achieving a more stable financial future.
Select a plan that is appropriate for your company
401k, 403b, IRAs, profit-sharing, and defined-benefit (or pension) plans are just a few examples of retirement plans. Each has its own set of advantages, features, grade levels, and administrative costs. Some are made for big businesses, while others are made for small firms.
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A 401(k) plan is generally offered by small employers that do not offer a SIMPLE IRA. 401(k) plans give businesses a lot more options and let employees contribute more money – up to $17,500 each year. They have more flexibility in terms of who is allowed to participate in the plan.
401(k) plans were designed as a supplement to pension plans because many firms offered some form of a pension plan to their employees. However, over the last decade, many employers have abandoned their pension schemes in favour of 401(k) plans.
- SIMPLE IRA plans
SIMPLE IRA plans were created primarily for small businesses since they can be set up quickly and at a modest cost.
They’re more of a one-size-fits-all answer, simple in design but available at a very affordable price.
Employers must contribute either matching or nonelective contributions to a SIMPLE IRA plan, and all employees must be eligible to join. Employees are only allowed to put $11,500 into the account per year. Businesses with less than 100 employees are typically eligible for these plans.4
- SEP plans
A SIMPLE IRA is identical to a Simplified Employee Pension (SEP) plan, except it is geared primarily toward self-employed or small business owners. The most major distinction between a SIMPLE IRA and a SEP is that a SEP plan does not allow employees to make voluntary contributions; only employer contributions are permitted. Employers who use a SEP plan have more flexibility in terms of when and how much they contribute.
- Profit-sharing plans (PSPs)
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A profit-sharing plan is a type of pension plan in which an employee receives a portion of the company’s profits. Employees will get a percentage of the company’s profits based on annual or quarterly results under this plan, which is also known as the deferred profit-sharing plan (DPSP).
This is a wonderful choice for firms looking to give their employees a sense of ownership in the company they work for. This will encourage them to work more and achieve better outcomes in the long run. There will, however, be some limitations on when employees will be allowed to take their funds without penalty.