The opportunity to save money through a company sponsored retirement savings plan is an incredibly valuable benefit. Whether you are leading a small business or a nonprofit, the long-term ability to put money away on a tax-deferred basis is critical to building a nest egg that will provide financial flexibility in the later stages of life. Small business leaders can start a 401(k) or 403b Plan (“Plans”) that is cost effective for your organization, helps attract and retain key employees, and increases productivity by alleviating employees’ money worries.

Critical Access

Many people in the workforce don’t have access to a retirement savings plan.  According to a recent article, over 40% of private sector employers in my home state of Minnesota don’t provide a retirement savings plan.[1]  This is an issue across the country as over 80 million people don’t have the opportunity to save money through their employer.[2]  A startling statistic is that people on average will save $5,000 to $7,000 a year when they have access to a company sponsored savings plan, but will only save $500 to $700 when left to their own devices.  It is critical to have a Plan to make saving an easy decision, where employees can take advantage of automatically saving money through their paycheck while potentially decreasing their taxable income.

Money Worries

Regardless of the state of the overall economy, people are worried about their finances.  A 2017 workplace benefits report confirmed that 64% of employees are worried about running out of money in their lifetime.  Those concerns don’t turn off when at work, as 43% of employees spend 3 or more hours a week on personal financial matters, detracting from productivity.[3]  Business leaders have an opportunity to address some of these concerns by starting a Plan to create an important savings vehicle, help your employees build a nest egg that addresses financial worries, and partner with an investment advisor that will proactively educate employees about the benefits of saving money and other important financial concepts.

Attract and Retain

Most business leaders are finding it very hard to find employees that will help their company or nonprofit meet their goals.  The lack of available employees has definitely limited growth for a number of local companies in the technology and manufacturing space that can’t invest in a new project because they don’t have enough employees to reach their goal.  In general, there is a lot of competition for employees with national unemployment at 4.3%.  Retaining talented employees is even more critical in this environment because people are difficult to replace, plus there is a constant concern that key employees are being recruited by your competition.  Job seekers are in a powerful position and able to consider a number of factors when selecting a new employer, and it would be unfortunate to miss out on a talented employee because you don’t offer a Plan.  One of our clients recently started a Plan after top candidates for a new positio n declined job offers without a retirement savings plan, and they didn’t want to be in the same situation when adding more employees in 2017.

Cost and Risks

Business leaders mention the high costs of starting a Plan as a reason they don’t have one, along with the risks involved.  Our team specializes in helping small businesses and nonprofits with their retirement plans, and we’ve found options that are very cost effective for start-up plans.  You have an option to cover administration costs directly, have the employees pay for the plan through their accounts or a combination of both.  We encourage clients to cover as much of the administrative costs as possible, particularly in the first couple years of starting a plan, because it helps employees see more growth in their accounts.  The other potential cost is to have an employer match (voluntary), which we also support when financially feasible because it encourages and rewards employees for saving money.  Finally, in regard to risk, there are opportunities to find investment advisors like ourselves who will both share fiduciary responsibilit y and support operating the Plan so it doesn’t take time away from running your organization.

Time is Now

Starting a Plan creates multiple benefits.  It is an important tool to attract and retain employees, provides people with the opportunity to save for the future, can differentiate your organization from its competition, and creates multiple tax benefits.  The Federal Government has a $500 per year incentive for new plans (total of $1,500) to support the start-up process by reducing your tax burden.  In addition, key leaders in the organization will benefit from the opportunity to decrease their taxable income, even more so for business owners.  In a strong economy with a tight labor market, this is the perfect time to start a Plan, and now is the time to have those conversations if you want to put the plan in place either before or at year-end.  The Retirement Services team at Flourish Wealth Management is happy to provide additional information and insights about starting a plan, including a free estimate of costs and benefits.

[1] MinnPost Article, “Minnesotans’ retirement savings coming up short: What to do?” by Doug Grow, 04/06/17.

[2] Data from Employee Benefits Research Institute Databook on Employee Benefits, July 2014.

[3] 2017 Workplace Benefits Report by Bank of America Merrill Lynch.