15 Mar 101: Small Business Retirement Savings Plans for Employees in 2023
When hiring new employees, thoughts of retirement may not be your immediate concern for potential employees. However, many of the best candidates may have long-term plans already in mind. Retirement savings plans are critical for everybody in the workforce. They allow employees to plan for retiring when and how they desire. According to the U.S. Bureau of Labor, more than 68% of private-sector employees had access to a retirement savings plan in 2021.
Offering contributions to a retirement savings plan is not required by law, but they show candidates and employees that you have their entire career in mind.
Related: Introduction to Small Business Health Insurance
What is a Retirement Plan: Saving or Investing?
It’s actually a little bit of both columns.
A retirement plan can be seen as an investment because when people or companies save for retirement, they are setting aside money with the hope of generating a return. The funds contributed to a retirement savings plan are typically invested in bonds, stocks, mutual funds, or other financial vehicles that can potentially grow in value. Most plans will have 8-10 options for investing that can be altered or updated at different intervals throughout the year.
It should be noted that all investments, even retirement savings plans carry some level of risk. Everybody involved should diligently consider investment goals and decisions.
Types of 401(k)s and Retirement Savings Plans
There are several types of retirement plans, but most fall into one of four categories. Due to potential tax benefits, they are regulated by the IRS and come with contribution and benefit limits that are reviewed and updated annually. For example, in 2023, the IRS increased benefits by 8.7 percent.
401(k) Plans: 401(k) plans allow employees to contribute a portion of their pay to their retirement savings on a tax-deferred basis. Many employers match a portion of that contribution to provide the most benefit for their workers. The contributions are typically placed in a range of investment options.
Individual Retirement Account (IRA) Plans: IRAs allow individuals to save (invest) for retirement with related tax advantages. There are two main types of IRAs: Traditional and Roth. Contributions to a Traditional IRA are tax-deductible, but withdrawals in retirement are taxed as income. Contributions to Roth IRAs are made from paychecks after-tax, making retirement withdrawals tax-free.
Simple IRA Plans: Similar to 401(k) plans, but tailored specifically for small companies with less than 100 employees. Like a 401(k), employees can contribute a portion of their salary tax-deferred, but employers must make a fixed contribution or match employee contributions.
Simplified Employee Pensions (SEP) Plans: Contributions to SEP plans can only be made by the employer based on a percentage of employee salary. These retirement plan contributions are tax-deductible for the employer.
Related: Offering A Small Business Health Saving Account is Good Business
PayrollCentric Retirement Savings Plan Partners
We find the best matches for your small business needs and facilitate 401(k)s and other retirement savings plans through our premium partners.
- John Hancock
- Toast
- Ascensus
- Voya Financial
- Wex
- Cal Savers
- Intuit Quickbooks
- Clear Care
- Empower Retirement
- Alerus
- And many more
Benefits Administration: PayrollCentric Can Help.
PayrollCentric makes open enrollment and benefits administration simple for administrators and employees alike with our online enrollment platform. Do you or your employees have questions about benefits? PayrollCentric can help. Call us at 310-258-9703.