I’m required to offer my employees a retirement plan. How can I do it easily?
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Great question! Nicolle Willson, Director of Retirement Consulting at Guideline, shares what you need to know about offering a retirement plan to your employees.
1. The 401(k) access gap
The AARP recently found that 48% of Americans age 55 and older don’t have any retirement funds at all. The government is starting to address this massive gap. Some states will require businesses over a certain number of employees to offer some sort of retirement plan. This can be either a state-offered retirement plan or a private market option, like a 401(k).
2. States with 401(k) deadlines in 2022
California, Illinois, and Oregon all maintain auto-IRA programs as the preferred state plan. These states already require businesses with a certain number of employees to either register with the state IRA program or set up a private plan and are expanding the requirement to businesses with lower employee counts this year. Connecticut, Maryland, and New Jersey do not yet have requirements in place but likely will soon.
3. Administration considerations
Offering a state retirement plan requires less administrative work in general, but most of the work will be collecting and remitting contributions to your plan every pay period which can be tedious. In contrast, 401(k) plans tend to involve more administrative work, but you can hire a modern provider like Guideline to do that work for a fairly low cost.
4. Cost considerations
State programs are generally a no-cost option for the business owner, but this means employees bear the cost in the form of an Asset Under Management (AUM) fee. This fee takes a percent of employee accounts annually. With a 401(k), employers typically pay the administrative fees.
5. Plan design considerations
State plans are Roth IRA-based, meaning their limits are lower, there is no immediate tax deduction for employees, and there is no flexibility in plan design. On the other hand, 401(k) plans can be quite flexible. They offer more options for tax deductions and allow business owners to increase savings for themselves and their employees.
For more information on offering retirement plans to your employees, watch the video below.
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