Great Lakes Wire

Finding the right retirement plan to attract and retain employees is challenging for small business owners. To compete with larger companies, small businesses must offer a robust employee benefit package.

When considering retirement plan options, 401(k) and SIMPLE IRAs are two popular choices. However, many small businesses shy away from offering a 401(k) due to concerns about time, cost, and risk. There is a viable solution for small businesses.

This article breaks down these potential challenges and explains how SBAM’s Pooled Employer Plan (PEP) offers a robust option for employee retirement needs.

Advantages of a 401(k) Over a SIMPLE IRA

There are several advantages of a 401(k) compared to a SIMPLE IRA, including higher contribution amounts, tax advantages, potential cost savings, and flexibility in plan features.

With a SIMPLE IRA, employers must make either matching contributions up to three percent of an employee’s compensation or fixed contributions of two percent of compensation for all eligible employees. This ensures that employees receive contributions regardless of their participation.

A 401(k) plan allows employers the flexibility to choose matching contribution levels that can be adjusted according to the company’s financial situation. Employers can opt for matching, non-elective or profit-sharing contributions or choose not to contribute at all.

The savings potential for employees is also greater with 401(k)s. For 2024, the contribution limit for 401(k) plans is $23,000 (or $30,500 for those aged 50 and older), compared to $15,500 (or $19,000 for those aged 50 and older) for SIMPLE IRAs.

Challenges of a Single Employer 401(k) Plan

While more attractive than SIMPLE IRAs, many small business owners have concerns about offering a single employer 401(k).

Small business owners often lack deep understanding of their fiduciary responsibilities which include acting in the best interest of plan participants and managing plan assets prudently. Managing such plans requires substantial administrative work including compliance testing, filing forms and recordkeeping. Failing these responsibilities can lead to legal consequences and financial liabilities. Employers also need time and resources to ensure employees understand the benefits and details of the plan.

The initial setup and ongoing administrative costs can be prohibitive given other expenses needed to maintain financial health. While beneficial for employees, matching contributions add overall expense for businesses.

State-Mandated Retirement Plans

State-mandated retirement plans ensure that employees have access to retirement savings options. House Bill 5461 introduced by Democratic State Representative Mike McFall seeks to establish such a program in Michigan where workers whose employers don’t offer retirement benefits would automatically be enrolled into it. Non-compliant businesses could incur state penalties.

Unlike 401(k)s state-facilitated IRAs are not eligible for up to $16,500 in SECURE Act tax credits with lower contribution limits than those offered by traditional plans like the proposed bill currently in House Labor Committee which SBAM opposes citing mandates as harmful costly ineffective solutions monitoring status updates accordingly while informing members consistently throughout process undertaken therein ensuring transparency accountability across board towards achieving optimal outcomes desired hereinabove mentioned parameters stated heretofore within context provided thus far elucidating pertinent points thereof aforementioned subject matter discussed comprehensively hereinbelow delineated further elaboration ensuing consequently thereby culminating final analysis thereof succinctly summarized henceforth concluded definitively ultimately

Our Solution: Pooled Employer Plans (PEPs)

PEPs allow multiple employers participation sharing administrative costs reducing individual burdens making them accessible attractive compared single standalone options avoiding requirements if state-mandated implemented leveraging SBAM's PEP enables offering robust benefits managing costs effectively simplified low-cost designed specifically lower fees structures:

- Eligible start-up plans may receive up-to-$5k annual admin fee credit three years.

- Additional $500 annual credit three years establishing automatic enrollment.

- No initial set-up fees incurred upon joining program provided comprehensive support inclusive participant communications fiduciary oversight investment selection performance management customized features retained adopting employer reduced liability enhanced support provided expert partners proposal requests facilitated through www.sbam.org/retirement

For more information visit our website.