Why are retirement plans important for SMBs?

Written by The Peppermint Team

Peppermint was created by a group of business owners, entrepreneurs, and benefits experts who have been on both sides of the table as employees and employers.

April 29, 2022

As a small-medium business owner, we understand that you might not have the ability to provide impressive benefits like those of Silicon Valley tech firms, VC-backed startups, or Fortune 500 Companies. After all, benefits can dent your bottom line, especially when multiplied by the number of employees.

You don’t have to offer free lunches or thousands of dollars of education benefits or team retreats to some tropical island if you can’t afford to. But one thing that we do want you to consider is investing in your employees by signing them up for retirement plans.

This article will share the benefits of retirement plans for your small-medium business, why you should invest (read: invest, not spend) on this, what options are available to you, and how we, at peppermint, can help you.

The Benefits of Retirement Plans

While retirement plans are significant benefits to your employees, we want to reiterate that employers and business owners like you stand to reap positive returns from them as well. Therefore, we want to explain the three most significant benefits of getting your employees a 401k in the form of a pooled employer plan.

You’ll be able to attract top talent

According to a study made by Glassdoor on benefits, the top 5 in employee satisfaction are 401k plans and retirement plans. Ensuring that you have a retirement plan in place will mean that most job hunters will give you greater consideration as their next employer.

Remember, benefits don’t have to mean free catered lunches or company retreats to Barbados, or free swag. What is important is that you’re able to give your employees the best headspace and environment for working by making sure that they feel cared for by their employer – you.

After all, in this era of The Great Resignation, where employees are becoming more and more concerned about their welfare and are quitting jobs where they don’t feel valued, you must show that you care. So what better way to show employees your dedication to their welfare, long-term growth, and development than by investing in their future through retirement plans?  

Retirement plans are a long-term benefit that proves you are in it for the long haul because you’re working hand in hand with your employees to make sure they stay in your organization.

Speaking of…

You’ll improve your employee retention

Employee retention is one of the best ways you can do to save your company money. Needing to hire replacements along with offboarding and turnover expenses can end up hurting you more because of the manpower costs of recruitment. Can you imagine the hours you and your hiring manager spend to screen and interview clients just to hire a replacement for a perfectly talented candidate who left because of inadequate benefits? On top of that there’s also the hours and efforts put in to onboard and train new employees to make sure they are up to par with the recently exited former employees.

According to BambooHR, the cost of losing a low-level employee is about 50% of their salary. On the other hand, losing a senior level or technical employee costs about 125% of their salary! In 2018, The Work Institute reported that companies spent about $800 million in turnover costs. Can you imagine how much companies are paying now, during The Great Resignation era?

Remember that high turnovers also reduce employee morale and hurt your business reputation. After all, who wants to work for or support a company that no employee wants to stay in for long, right?

Retirement plans show employees you care about them

As mentioned above, retirement plans are a great way to show your existing employees that you are committed to them. 

By investing in their future, you show employees that you care about their well-being and stability. In return, employees feel encouraged to become invested in your organization, goals, mission, and vision as you continue to engage them positively.

Aside from the money you’ll save because of improved retention, you can also save in the process of setting up the retirement plan for your company.

You get tax credits for setting up retirement plans

Not only will you get to save money by retaining employees, but  setting up retirement plans like pooled employer plans will also give you tax breaks and tax credits through the SECURE Act.

Eligible employers who set up retirement plans in their businesses may receive up to $5,000 in tax credits for the plan’s first three years. In addition, setting up automatic enrollment gives you an additional $500 tax credit. Congress has made it easy for employers and businesses of all sizes to get started.

As a small business, we understand that every dollar counts, so we can imagine that up to $16,500 in tax credits within three years will help you a lot.

Types of Benefits Programs Available to SMBs

The main goal of benefit programs like a 401k, and more specifically, a pooled employer plan (PEP) is to provide your employees with a way to save for retirement. The money invested in these plans will grow, tax-deferred. It means that the employee won’t have to pay taxes on it until they take their money out of the plan.

With a retirement plan, you can help your employee set aside a certain amount of money each pay period, tax-free, to an account that earns interest through stocks, bonds, mutual funds, and other investment instruments.

This section will briefly describe 401ks and PEPs to help you understand your options better.

Traditional 401k Plans

401k plans are some of the most well-known methods to save for retirement. It is an employer-sponsored retirement account that has been defined in the subsection 401k of the Internal Revenue Code, hence the name 401k plans.

Since this involves your money and your employees’ salary, this also requires a lot of administration, management, and compliance requirements. For example, 401k plans typically need administrators to manage the plan, ensure compliance, communicate with your employees, prepare plan descriptions for dissemination, and approve transactions. As a small business, it may take you more time, money, and effort for you to administer and maintain a 401k.

The prohibitive costs and high-maintenance administration that come with the 401k are often a barrier for small-medium businesses like yours. 

Pooled Employer Plans (PEP)

In short, pooled employer plans are a form of shared 401k plans. It is a single 401k plan with multiple employers or businesses contributing to it.

Pooled employer plans allow for small-medium business owners like yourself to pool your investments so that you can open highly beneficial retirement plans for a fraction of the cost. A PEP also means that your pooled plan provider (PPP) like peppermint will be taking over all the administrative and fiduciary responsibilities expected of a 401k administrator.

With a PEP, you’ll still be able to enjoy the flexibility of choosing whether you’d prefer a safe harbor plan or an employer-directed plan. In addition, there are also several other plans to choose from depending on your contribution capacity.

We understand that owning an SMB means you need to be prudent and strict with budgets, so if you want to have an idea of the costs of a PEP prior to making the leap, you can check out our calculator here.

Why Choose PEPs and Peppermint?

To be honest, as a pooled plan provider, we here at peppermint are all about PEPs.

After all, PEPs are an amazing and cost-effective alternative to a 401k plan. It’s a form of retirement benefit that a small-medium business can offer to its employees without the huge risk and administrative cost that come with the usual 401k.

If you want to get started on reaping the benefits of giving your employees a retirement plan, then you should consider opening a pooled employee account here with us at peppermint. Not to toot our horn, but we work with some of the best known and most trusted names in the retirement planning industry like Grey Fox Wealth, Mid Atlantic Trust Company, and The Retirement Plan Company. 

When we say we want to make retirement planning easy for everyone, including SMB owners like you, we mean it. You can contact us by sending us an email at info@peppermint401k.com or leaving your details over here and one of our retirement planning specialists will get in touch with you as soon as possible.

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