Payroll Retirement Plans for Your Employees: Is It Worth It?
Every once in a while, one of my clients will ask me advice regarding offering retirement benefits to their current employees. The client is really wanting to know if they should go through with this type of compensatory perk in order to attract a more quality and talented pool of potential employees in the future.
So, my advice is always this:
- If you are NOT going to offer an employer match to the employee’s 401k deduction, then you are not offering anything special to the employee here. This is because the employee can simply open their-own personal tax-deductible IRA account complete with auto-debits out of their bank account (instead of auto-debits out of their paychecks).
- You will be paying a high monthly or quarterly fee to a retirement management company to offer this service to you, the employer, to provide an online portal to maintain your employee 401k accounts. So be sure these fees you pay will be worth it to your business.
- Your bookkeeping fees will go higher (assuming you outsource your bookkeeping services) because more time will need to be allotted to ensure that employee paycheck deductions (and possibly employer matches) are correctly maintained and correctly booked into your bookkeeping system. Also, don’t forget the moneys that will need to actually be submitted to each employee’s retirement account after each paycheck (or at least monthly).
Overall, what I find is that retirement accounts are best for business that have (and can afford) at least 15 full-time employees, for the reasons stated above. If your business is smaller than this, I would advise just to offer other compensatory perks such as higher wages, more generous PTO rates or bonuses/commissions based on performance/sales/etc.
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