Struggling to Offer Your Employees a Retirement Plan? Here's a Solution That May Help

April 20, 2017

As a small business owner, you may be wondering about the benefits of offering your employees a 401(k) plan. According to a survey by Natixis Global Asset Management, almost 80 percent of American workers feel that employers should be required to offer retirement plans to their employees.

Lack of retirement benefits is particularly a problem for employees of smaller companies (those with fewer than 50 employees) where, based on the Bureau of Labor Statistics, fewer than half of employees have access to retirement plans. On the other end of the spectrum, over 90 percent of companies with 500 or more employees offer a retirement plan. Here is what you need to know if you, as a small business employer, want to offer a 401(k) plan at your company:

Retirement benefits can be good for business
There are many benefits to offering your employees a 401(k) plan:

  • First and foremost is convenience. By offering a retirement plan, you’re providing employees with the opportunity to save for retirement effortlessly via payroll deduction.  
  • The annual employee contribution maximum the IRS allows within a 401(k) plan is considerably higher at $18,000 annually, versus $5,500 for an IRA. For many employees, especially those who may have had the ability to participate in a prior employer’s 401(k) plan, this is an important benefit. 

Because of these benefits, the 401(k) plan can be used to attract and retain skilled employees.  While an employer contribution is not required, it is an option and will make the plan that much more attractive to your employees.  If your company is newer and you cannot afford an employer match, this is something that can always be amended to add at a later date.

Why many small employers don’t offer their employees a retirement plan
The most common reasons leaders of smaller businesses give for not offering retirement plans are, not surprisingly, cost and time.  Small employers often cannot afford the plan administration costs and do not have the time and/or expertise to administer a 401(k) plan.  The ins and outs of administering a 401(k) plan are a valid concern as the regulations can be complicated and there are penalties associated with administering a plan incorrectly.  However, there are retirement services and providers that can assume these responsibilities for employers and the benefits, as mentioned above, can often outweigh the costs.

Enter the Multiple Employer 401(k) Plan
A proposed solution for many small businesses that want to offer retirement benefits but are afraid they might be prohibitive is the multiple employer 401(k) plan (MEP). An MEP is a single plan, adopted by a group of employers. This plan has a common interest but does not have common ownership. By comparison, a single employer plan covers employees of one employer or several employers that are part of the same related group of employers. 

Under an MEP arrangement, a third party serves as the plan administrator.  This allows employers the ability to offload most, if not all, of the plan administration. It also alleviates some of their fiduciary liability.  Also, due to economy-of-scale pricing, administrative costs in an MEP are often lower than what an employer could get if they were to sponsor their own plan.

Why MEPs may be the solution for small business concerns
MEPs address many of the employer’s concerns about offering a retirement plan for their employees, including cost and administrative offload.  However, they do still require each employer to perform separate non-discrimination testing, which can be problematic for some employers. To learn more about MEPs, feel free to contact TriNet.

This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.

This post may contain hyperlinks to websites operated by parties other than TriNet. Such hyperlinks are provided for reference only. TriNet does not control such websites and is not responsible for their content. Inclusion of such hyperlinks on does not necessarily imply any endorsement of the material on such websites or association with their operators.

By Dan Toomey

Dan Toomey is director of retirement benefits for TriNet.

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