Small Business Retirement Plan Options: What You Need to Know
As a small business owner, you have enough responsibility as it is. You shouldn’t have to navigate retirement plans on top of everything else.
Unfortunately, you likely spend more time on administrative tasks than you’d like to every month. And even if you don’t currently offer a retirement plan to your employees, you probably think about it on a regular basis.
Here’s an important fact to remember: A competitive retirement plan matters. And it doesn’t have to break your company’s bank account.
As we’ll explain in this article, sufficient research and experienced partners can help you deliver greater value to your employees and benefit from enhanced employee productivity, retention, and morale—all by understanding small business retirement plan options.
Retirement Challenges for Employees And Small/Medium Businesses
The current state of retirement planning in the United States is dismal. Some of the most alarming facts:
- 56 million workers are unable to save for retirement through work. (Source: Pew Research)
- 30% of Americans over the age of 59 lack any savings. (Source: CBS)
- 65% of workers at companies with 10-24 employees lack access to an employer-sponsored retirement plan. (Source: AARP)
- 78% of workers at companies with fewer than 10 employees lack access to an employer-sponsored retirement plan. (Source: AARP)
About 50% of small businesses find it difficult to afford retirement plans. (Source: Finch)
For a country that prides itself on wealth and commonly encourages fiscal responsibility by saving for retirement, this is terrifying.
But it’s not just bad for employees. That financial stress impacts worker productivity and negatively influences company revenue. In fact, 58% of employees say they struggle to focus because of financial stress, according to a recent Retirement Readiness Report.
Here’s the good news: By offering retirement benefits, you can immediately separate your business from your competitors, fostering a workplace where employees want to be.
How to Offer Retirement Plans As a Small or Medium Business
Despite what you may have experienced in the past, you can offer competitive retirement plans—even if your options seemed too expensive.
Between our experienced team at The Payroll Shop and our dedicated partners, we can help you develop a robust package that attracts and retains top talent (and keeps your team productive).
Step 1: Understand Your Goals and Budget
Before jumping into the world of retirement plans, consider your options and goals. Ask yourself:
- Do I want to match employee contributions to provide greater value to our team members?
- How many employees do I have, and how can that impact my plan options?
- How do I expect our team to grow in the next few years?
- How much can my company afford to contribute to plans each month? How much can we afford to administer these plans each year?
This quick self-assessment will help you rule out plans that are too complex or costly while narrowing in on ones designed for businesses like yours.
Step 2: Explore the Most Common Retirement Plan Options
Here are three of the most popular (and affordable) retirement plans for small and mid-sized businesses, along with their pros and cons:
1. SEP (Simplified Employee Pension) IRA
A SEP IRA is generally a great option for businesses with only a few employees, but it can require a little more investment from your side. Still, this is a low-maintenance plan that benefits all team members.
SEP IRA Pros:
- Easy to set up and administer, with minimal paperwork required
- No employee contributions required, which makes it an attractive option for your team members
- High contribution limits (up to 25% of compensation or $69,000 in 2024)
SEP IRA Cons:
- Must contribute the same percentage to all eligible employees
- No Roth option (pre-tax only), which has a potentially negative long-term impact on your employees
- Employees can’t contribute themselves, which can limit their overall investment opportunities
2. SIMPLE (Savings Incentive Match Plan for Employees) IRA
SIMPLE IRAs are terrific options for businesses with fewer than 100 employees looking for a low-cost solution to retirement benefits.
SIMPLE IRA Pros:
- SIMPLE IRAs are relatively simple to administer
- Employees can easily contribute via salary deferrals
SIMPLE IRA Cons:
- Lower contribution limits than a 401(k) ($16,000 employee deferral limit in 2024)
- No Roth option, which creates a greater tax burden during withdrawals later on
- The employer must either match up to 3% of salary or make a 2% non-elective contribution, which places greater financial pressure on your company
3. Traditional 401(k)
Traditional 401(k) plans are ideal for growing or established businesses ready to offer a robust plan with flexible options for your employees.
Traditional 401(k) Pros:
- Higher contribution limits for employees
- Employers can match contributions, which maximizes an employee’s saving opportunities
- Roth and traditional options available, which can create long-term tax benefits
- More attractive for recruiting and retaining employees
Traditional 401(k) Cons:
- More complex setup and ongoing compliance, creating greater administrative burden for your leadership team
- Higher administrative costs
- Annual IRS testing required unless safe harbor provisions are used
Step 3: Compare Costs And Features
As a small or medium business, price matters. But when evaluating providers, pay close attention to the fine print for additional fees, cost-saving opportunities, and administrative burdens. Check for:
- Hidden fees for setup, recordkeeping, transaction, or investment fees
- Cost-sharing models, since some providers split administrative fees with employees
- Setup support and compliance guidance—or lack thereof (which could create additional headaches for you
- Flexibility to scale the plan as your team grows
Step 4: Partner With a Trusted Payroll and Retirement Professional
At The Payroll Shoppe, we work with retirement plan partners who understand the needs of small and mid-sized employers. We can help you select the best plan for your business stage while connecting you with a provider with flexible pricing options that meet your budget.
Contact The Payroll Shoppe for Small Business Retirement Plan Options
If you’re ready to offer the right retirement plan to your employees, contact us! Our dedicated team members and trusted partners can help you make the right decision for you and your workers.
And that’s important. After all, a great retirement plan boosts focus, increases retention, and raises employee morale!