In today’s business environment, with so many startups entering the marketplace, it’s not a given that every employer will offer a retirement plan. In fact, many small business owners don’t provide one early on, putting their company at a disadvantage when competing for the most qualified job candidates.
Whether you run a startup and are just entering the market for retirement planning services, or you have an established business looking to reevaluate what you currently offer employees, it’s critical to understand your options. That’s why SVA Plumb Financial, a Madison-based regional wealth management firm, suggests giving considerable thought to the kind of retirement plan design your company provides.
“Each business is unique, and plans should be designed to fit the needs of the employees and management,” says Sean Cote, senior wealth manager and director of retirement plans for SVA Plumb Financial. “Flexibility in the plan is important.”
Common business retirement plan types include 401(k), profit sharing, and defined benefit/cash balance plans. Not every plan and employer contribution formula fit every company, Cote cautions, adding that plans often are established using a template plan design that doesn’t consider an employer’s specific needs. He also notes the process used to enroll and educate employees is often overlooked, yet have a significant impact to employees saving enough to meet their retirement goals.
Additionally, employers should make sure they understand the fiduciary role their advisor takes in the selection and ongoing monitoring of the investment options offered in the plan. Employers often assume that the advisor is taking full discretion on investment-related decisions for the plan; in reality, most advisors do not take on this level of fiduciary liability.
“Know what level of service you’re paying for,” says Heather Benash, a retirement plan consultant for SVA Plumb Financial, referring to retirement plan providers with low fees and little face-to-face contact. “In some cases, a different — or customized — plan could benefit the employer and employees. That interaction between employee and advisor, that sharing of basic financial info, really personalizes the process and helps people maximize their retirement goals.”
In many cases, she adds, employees are overwhelmed with investment options, and a savvy advisor will help reduce the number of investment choices to make the decision easier. “People are more likely to invest in themselves when somebody is sitting next to them, helping them,” Benash says.
Regardless of the plan you choose for your business, it’s critical for employers to educate their employees about the importance of planning for early retirement. According to SVA Plumb Financial, several studies show that more than 70 percent of today’s workers are not on track to meet their retirement goals.
“That’s because people haven’t formed savings habits early on,” Cote says, suggesting business owners be aware of the types of resources available within their 401(k) plan and encourage new employees to get help to develop a personalized plan as soon as they’re eligible to participate. He suggests younger workers consider investing 13 to 15 percent of their gross pay into a retirement plan, a number that might need to increase as employees age.
“It’s all about inertia,” Cote says. “Those habits should be formed at your first job. Some people start thinking about retirement savings too late.”
Cote and Benash conclude that business owners should regularly review their company’s retirement plans and make sure they’re providing the best options for both employees and themselves.
This article was published in IB Madison Magazine - September 2018 issue.