Retirement plans come in a wide range of shapes and sizes, each with its own unique functionality. The following steps can help simplify the process of choosing and managing a plan.
Step 1: Take stock of your company’s financial situation
The wide variety of available plans means virtually any business can begin a retirement plan regardless of its financial situation. Before you begin looking, however, it’s important to understand the amount of money your company can afford to spend on setting up a plan. Many plans, such as a defined benefit plan, have significant administrative costs and often require employer funding. Others, such as 401(k)s, are less expensive to set up and don’t always require employer contributions. Knowing your price range will quickly narrow down the wide range of options and make the decision process much easier.
Step 2: Research the options
Another option is the Savings Incentive Match Plan for Employees, or SIMPLE IRA, which is available to businesses with fewer than 100 employees that offer no other retirement plans. Employees can contribute up to up to $11,500 annually to this plan. The employer is required to contribute at least two percent of the employee’s annual salary to the plan. The SIMPLE IRA is designed to be less complex than other options and therefore not as costly to administer. Many companies opt for a profit sharing plan, which places no requirement on contributions, and the business can link the amount it contributes to profits.
There are many other options available. This partial list is meant only to demonstrate the range available to your business. Research retirement plans carefully and determine what’s best for your employees and within your budget.
Step 3: Consider your employees
Age, marriage and education affects who participates in your company’s retirement plan, reports the SBA’s study. Before you make a final decision, look at the plan’s eligibility requirements. Will the majority of your workforce be allowed to partake or will their personal circumstances leave them out in the cold?
Step 4: Evaluate the provider
Step 5: Get an expert’s opinion
Some small businesses find that it’s helpful to contact a financial institution such as a bank or insurance company to assist in establishing and managing the plan. Although some of these services come with a fee, it’s typically a good idea unless you have strong expertise in the areas of finance and government regulation.
Step 6: Figure out who’s in charge
“Know what is and what is not provided,” says Kunze. “Know who is going to do what.”
As much as you like being in charge, managing the plan yourself may be a bigger job than you’re prepared to handle. Filling paperwork, tracking contributions and enrolling new employees is a full-time job. Be sure not to select a plan that saddles you with a bunch of time-consuming responsibilities.
Step 7: Be aware of nondiscrimination laws governing retirement plans
You’ll need to investigate the rules that apply to the plan you select and avoid any legal complications by making sure they are compatible with the structure of your company. It’s important that you know who is in charge of the year-end tax paperwork, says Kunze. Your business will get stuck in a legal mess if the paperwork fails to get filed.
Step 8: Consider the plan’s portability
Portability is important because it leaves a legacy taste,” says Kunze. “If the process is laborious, someone is going to hear about it.”