Spokane Journal of Business

Employers benefit from offering retirement plans

Such incentives may help recruit, retain leading talent

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Planning for the future means many things for many people. Real estate investments, life insurance policies, retirement plans, and savings accounts can make up a recipe for a great quality of life down the road. Business owners and leaders are wise to help themselves and their employees achieve retirement goals.

Two common benefits offered by employers are retirement accounts and insurance benefits to help employees plan for life after work.

Retirement plans can be a win-win for employers and employees. Providing a retirement benefit is vital for small businesses to recruit top performers and create a culture of long-term sustainability and growth.

According to the Internal Revenue Service, there are several retirement plan options for business owners to consider. Simplified employment pensions, 401(k)s, 403(b)s, employee stock ownership plans are just a few options. The key is to get started because time is money and even the smallest contributions grow over time.

It’s also a great way to attract highly qualified employees. Some studies estimate 82 percent of millennials are investing in retirement. That’s more than baby boomers (75 percent) and Gen Xers (77 percent).

The good news is any business owner can provide this benefit to themselves and their employees. Offering a retirement plan can provide tax breaks for both the company and the employees. Many business owners believe the myth that they’re too small to qualify for a retirement plan. In fact, any size business, even a self-employed owner can be eligible for a 401(k) plan.

Once you have chosen the retirement plan that best fits your business, you need to decide if the company is going to match contributions and the minimum requirement for employee eligibility.

While some companies don’t provide a match at all, others offer an annual profit share into the 401(k) based on business performance, and some offer a match that vests in anywhere from zero to four years. There’s a lot of flexibility here, and a company can always decide to start a plan without matching and then decide to add it down the road when it makes sense for the business.

If you do decide to provide an employer contribution, it’s deductible for your business. It’s not required for employers to match employee contributions. It’s important to do extensive research based on your annual revenue, number of employees, and investment philosophy. It’s advantageous for the employer and employee to contribute to and provide a plan. Building value, increasing loyalty, and strengthening investments are good for everyone.

When it’s time to put your plan into action, be sure to have your plan in writing and take the time to explain it yourself or use a qualified professional to present and explain the benefits to every eligible employee.

Life insurance benefits are an additional investment opportunity for employees. For millions of people, it’s a crucial part of an overall financial strategy. It can provide support for dependents after a death, funds to pay for educating children, and extra income for the retirement years. There are two main types of life insurance policies: term and permanent.

Term life insurance provides protection for a fixed number of years. It pays a benefit only if you die during the term. You pay premiums for each year of the term and when the time is up, you stop paying and no longer have coverage. Some policies are renewable at the end of the term for a limited number of additional conditions. Most employer and other group policies are term life policies that end when you leave the company or organization.

Term insurance usually is the least expensive option. It’s a good way for a wage earner with limited income to provide for their family or for a single person to cover their own death costs and debts. You may be able to exchange it for another type of insurance if your needs change.

Permanent life insurance policies provide lifelong protection. There are several types, including whole, universal, and variable. Depending on the type of permanent life insurance, premiums can be set up in a variety of ways.

In addition to death benefits, these policies also accumulate a cash value. After a certain amount of time, the cash value has several advantages. Permanent life insurance is generally more expensive than term life insurance and can be more complicated because of the cash value/investment aspect.

Choosing a Professional: Take the time to check on the strength of the retirement plans and insurance companies you’re considering. A number of insurance rating services assess the financial strength of companies. You can find these ratings in your public or business libraries or directly from the rating service. Also, go to bbb.org for business profiles on the companies you’re considering.

Comparing Costs: Shop around for the best rates you can offer employees. Many life insurance companies offer proven service to their policyholders, so there’s a good deal of competition. State and provincial regulatory agencies and the insurance industry set certain requirements to protect all parties. For example, premium amounts are based on the age of the insured with younger buyers paying less than older buyers do. A physical examination often is required to prove a buyer is in good health and a fair risk for the company. It’s a good idea to review the policies, costs, and benefits offered by more than one company. You should also talk with more than one insurance representative.

Many states in the U.S. require cost disclosure statements and most companies provide them even if the state does not require them. Remember that the only valid cost comparisons are between similar plans.

Educate Your Team: Providing informational sessions explaining the advantages of retirement funds and insurance policies is a significant benefit for employees, especially those new to the workforce. Best practices include comprehensive explanation of the benefits during the onboard process and offering continuing education about the benefits throughout the year and employees’ tenure with your company.

Small business doesn’t have to mean fewer benefits for employees. Take the time to assess your goals, foster a culture of planning for the future and do your research for you and your employees. Everyone will benefit.

Kirstin Davis is the Spokane-based marketplace director for Better Business Bureau Serving the Northwest.


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