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Should a Small Business Offer a Retirement Plan for Their Employees? Thumbnail

Should a Small Business Offer a Retirement Plan for Their Employees?

Jonathan M. Gardey, MBA, CFA®, CFP®

President and Chief Executive Officer 

With 2021 in the rearview and 2022 rolling in, businesses are ready to forge ahead with big plans to grow and prosper. But, business owners right now are facing another challenge: Finding the right caliber of people who want to work. It’s become tremendously hard to secure top talent as of late.  

Viable candidates are out there, but with a million more jobs available than people to fill them, job seekers are becoming much more discerning about their choice of jobs and employers. And those that do take on a job are often quick to bolt as soon as they find a better one.

Unfortunately, businesses in many industries are more challenged than ever to find high-quality employees and keep them. It costs money to recruit, hire, and train good employees, and it’s even costlier to replace them. The bottom line? It can be far more profitable to incentivize employees to stay by offering them a chance to secure their future with an employer-sponsored retirement plan.

Of course, offering employees a retirement plan does not come without added expenses. But, is it less expensive to provide your employees with a highly desirable benefit that can impact their lives, or constantly have to replace them because they have no real incentive to stay? The choice is made even easier when you consider all the other benefits realized by your employees, yourself, and the business, as well. Let’s dive in.

Benefits for Employees

At the end of the day, the way you compensate your employees is a reflection of the value you place on them. When employees feel more valued, they are naturally more invested in the business and dedicate more of their talents to seeing the business succeed without being asked.i What better way to show your employees their worth than by offering them benefits that support their physical, mental, and financial well-being?

When employees aren’t supported in these areas, the inverse is often true. In fact, a MetLife study found that financial health is the top concern among employees, with nearly half concerned about their ability to retire on schedule. Anxiety over their future is a leading contributor to poor mental health, which often leads to reduced productivity. 

But with a healthy employer match, strong investment options, and an employer who shows they support their long-term financial goals, employees often feel less financial stress and are able (and willing) to commit more to their jobs. 

Benefits for Business Owners

Business owners need to save for retirement too: Many business owners believe their business is their retirement plan, with visions of eventually selling it and riding off into the sunset. However, if they’re serious about securing their financial future, they should diversify their assets to mitigate their risks. There are many options for diversification, but one of the best strategies is to invest in securities and other investments through a qualified retirement plan.

Of course, selecting the right retirement plan can be a complex process, so it’s likely you’ll want to lean on the guidance of your financial advisor as you navigate your options.  

Business owners can enjoy significant tax savings: We don’t like to speak in absolutes often, but most business owners can afford a little more tax savings. Some employer-sponsored plans allow for substantial tax-deductible contributions. In 2022, for example, the maximum contribution to a 401(k) plan is $20,500 ($26,500 if aged 50 or older). But, it can be much higher if you combine it with a profit-sharing plan. 

Benefits for the Business

Tax credits: Under the SECURE Act passed in 2019, businesses that start a 401(k) plan can receive up to $5,000 in annual tax credits for the first three years of the plan. That can offset any administrative costs.

Tax savings: Although businesses are not required to provide matching contributions as an additional benefit for employees, those that do provide them receive a tax deduction. Employers can choose to match dollar-for-dollar up to a certain limit or institute a profit-sharing option. The ultimate benefit to employers who make matching employee contributions is higher employee retention.

Higher employee productivity, retention, and attraction: This brings us full circle as to the impact a retirement plan can have on employee happiness and commitment, which turns out to be a win-win for the business and its employees. Achieving higher productivity and retention is essential to its profitability and, ultimately, survival. It’s well documented that employees who feel better about their financial future are more productive.

Happy employees are productive employees ii, which translates to higher retention. Employers who can point to highly satisfied employees have a much easier time attracting quality candidates who want the same for themselves. It’s the circle of life for small businesses with ambitions of growing their bottom lines.

Fortunately for small businesses, between lower employee turnover costs, higher profits, and tax savings, offering employees a valuable benefit such as a retirement savings plan generates a net gain in the long run.

For more information about the comprehensive planning services we provide, we encourage you to take a look around our website and see if we could be a good match. We best serve clients looking for exceptional client service and that value a long-term partnership and have minimum of $500,000 in investable assets.

Important Disclosure Information

To better understand the nature and scope of the advisory services and business practices of Gardey Financial Advisors Inc., please review our SEC Form ADV Part 2A, available via the SEC's website @ www.adviserinfo.sec.gov.  (Click on the link, select “Investment Advisor Firm,” and type in the firm name. Results will provide you both Part 1 and 2 of the Gardey  Financial Advisors Form ADV.)  Statistics from third-party sources are deemed to be accurate but have not been confirmed by Gardey.

This communication is for informational purposes only and does not purport to be a complete statement of all material facts related to any company, industry, or security mentioned.  The information provided, while not guaranteed as to accuracy or completeness, has been obtained from sources believed to be reliable.  The opinions expressed reflect our judgment now and are subject to change without notice and may or may not be updated.  Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance.  This notice shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which said offer, solicitation, or sale would be unlawful before registration or qualification under the securities laws of any such state.  Readers who are not market professionals or institutional clients of Gardey Financial Advisors should seek the advice of their financial advisor before making any investment decisions based on this communication.  Additional information on any securities mentioned is available on request.                                                           

i  https://warwick.ac.uk/newsandevents/pressreleases/new_study_shows/ 7February2022  

ii https://warwick.ac.uk/newsandevents/pressreleases/new_study_shows/ 7 February 2022