For many aging employees, the concept of retirement is exciting. Unfortunately, 40 percent of Americans fear that they will not be able to retire due to financial setbacks, according to The Motley Fool. Offering a competitive retirement plan helps to have sufficient money available upon retirement for everyday expenses, as well as for unexpected circumstances that may arise, such as health problems.
Reaching financial independence also enables employees to fulfill their wishes and aspirations after they retire, such as dream vacations or business expansions. Here is a look at plan options and reasons why businesses should offer a competitive retirement plan.
Types of Retirement Plans to Offer Employees
There are several types of retirement plans commonly offered by businesses. Consider offering one or more of the following plans:
- 401(k) Plan – The 401(k) is one of the most common employer-sponsored retirement plans, often used by larger, for-profit businesses. Under this type of plan, the employee funds the account and the company may choose to match a certain percentage of the employee’s contributions. The employee retains control over the account at retirement and has the option to choose investments for their funds.
- Roth 401(k) Plan – Roth 401(k) retirement plans offer many of the same benefits as traditional Roth IRAs and have the same employee contribution limits. A Roth 401(k) does not offer tax deductions for contributions, but the employee does not pay tax when the money is withdrawn during retirement if they are 59 and 1/2 or older and the money has remained in the account for at least five years.
- 403(b) Plan — A 403(b) retirement plan is very similar to a 401(k) plan except that it is designed for nonprofit organizations, such as public school systems, hospitals, churches, and similar businesses. Under a 403(b) plan, an employer has the option to match contributions up to a certain percentage. The funds are also subject to taxation at the time that they are withdrawn from the account.
- SIMPLE Plan — A Savings Incentive Match Plan for Employees (SIMPLE) is a type of IRA plan that is often offered by smaller businesses. Employees can choose to make tax-deductible contributions to the plan and employers may match contributions up to 3 percent of the employee’s salary. The maximum amount that an employee can contribute increases once they reach the age of 50.
Reasons to Offer a Competitive Retirement Plan
A retirement plan is a valuable addition to any employee benefits package. There are many reasons why businesses should offer a competitive retirement plan to employees, including the following.
1. Meet Employee Expectations
Today, competition between businesses is fiercer than ever. To make their company stand out, many employers are now offering generous benefits packages that include retirement plans. Due to rising competition in many industries, many job seekers have come to expect retirement benefits as part of their overall benefits package.
2. Attract Top Talent
Offering a retirement plan can also aid in a company’s recruitment efforts. Some job candidates find the lack of a 401(k) or other retirement plan to be a deal breaker and may look elsewhere for work. Businesses that want to attract and retain top talent should consider offering an attractive benefits package in addition to a competitive salary.
3. Increase Employee Loyalty
Employees are more likely to be loyal to their employer when they receive a fair salary, medical insurance options, paid vacation time, and other benefits like retirement plans. A competitive retirement plan can be an excellent way to motivate employees to work hard and remain productive. It also shows employees that the company is willing to invest in their dedicated workers.
4. Enjoy Tax Incentives
Businesses with under 100 employees can enjoy certain tax incentives when they offer their employees a 401(k) plan. This tax incentive enables qualifying businesses to receive a tax credit of up to $500 per year for the first three years. Company matches are also tax-deductible for businesses that choose to offer them.
5. Invest in Your Own Retirement
Employees are not the only ones who can benefit from a competitive retirement plan. Employers too can invest in their own retirement. Employers are likely to see growth in their investment earnings which are tax-deferred when they take a distribution or withdrawal.
Why Retirement Plans Are Important For The Manufacturing Industry
The presence of the union in the manufacturing industry helps to provide retirement plans to be offered by a majority of employers. 67.1 percent of employers within the manufacturing sector are offering their employees retirement plans.
Therefore to stay competitive in the industry and obtain top talent, your manufacturing company needs to be proactive and implement a well rounded retirement plan for your employees.
Schedule a Consultation with New City Insurance
There are many things to consider when selecting a retirement plan for employees. While cost is a common concern, it should not be the controlling factor when choosing a plan.
Consider speaking with an experienced employee benefits consulting firm to determine what type of retirement plan would best benefit the business and its workforce. For more information about why you should offer a competitive retirement plan or to schedule a consultation, contact New City Insurance.