Employers can add value to their total benefits package by offering a retirement plan such as a 401(k). High costs and large time requirements, however, prevent many companies — especially emerging entities — from proceeding.
“There are ways to partner with a firm to provide a plan that is easy to implement, low in cost and that can help reduce the administrative burden to the employer,” says Kristina Keck, vice president of retirement plan services for Woodruff-Sawyer & Co.
Smart Business spoke with Keck and 401(k) provider ForUs about how companies can offer an attractive retirement plan for employees.
What are the advantages for the employer to offer a retirement plan?
Employees who are saving competently for retirement feel they are doing the right thing with their retirement and actually function better at work.
It’s a matter of what an organization can do to better prepare employees for retirement and make them more financially fit. It actually comes back to a stronger bottom line for the company because if employees have forced those worries aside, they feel better financially and will therefore be more productive.
What are some of the immediate concerns companies may have about offering a 401(k) plan?
Emerging companies are often concerned about the cost of starting a plan.
The cost of a plan might average 2 percent per year, but that rate won’t last forever. The plan is going to grow over time, and as it grows the average cost will decrease. For employees, an employer-sponsored 401(k) is a better deal than opening an IRA because if a person opens his or her own IRA, there can be a sales charge as well as higher ongoing costs.
When considering a retirement plan option, it is important to ask the right questions. Many of the startup 401(k) providers will bundle the costs and pass them off to employees. The charges could be as high as 2.5 percent for the employee. If the employer knows that it has the option to pay for some of the costs, it can help reduce the overall cost to employees.
Another consideration is to engage a service provider that can accept some of the fiduciary responsibility. A partnership such as this can remove almost all the day-to-day administrative burdens most employers have when operating a retirement plan.
Is an employer match a mandatory matter?
Whether or not an employer can match contributions is one of the challenges facing emerging companies. If the company is in the pre-initial public offering stage or is still seeking investors, more often than not the employer match simply can’t make it to the benefit package.
Retirement plans can have a discretionary plan for matching contributions. Employers can offer matching contributions depending upon the company’s performance. As revenue grows, the contributions may grow as well.
What about the complexity of setting up a retirement plan?
Employers have many resources to tap into. They should talk to a retirement plan consulting firm that specializes in startup plans for guidance to set up a plan that’s right for their organization and budget.
There are many ways for employers to deliver this valuable benefit, including online platforms that make the plan selection and participation process more accessible.
For example, Woodruff-Sawyer leverages its partnership with ForUs, an online 401(k) platform built for small businesses. It includes the award-winning DAVE virtual adviser that walks participants through their options using easy-to-understand language.
‘Small businesses deserve a plan that is hassle-free at a fraction of the typical cost. ForUs has designed a 401(k) that works right out of the box for small employers and our early results show it’s working with more than 95 percent of employees participating when our platform is made available,’ says Shin Inoue, ForUs CEO and co-founder.
Retirement plans and investments are complicated — there are great tools out there now that offer low-cost, high-quality investment options, support to the employer and personalized advice for employees. ●
Insights Business Insurance is brought to you by Woodruff-Sawyer & Co.
