How to Choose the Best Retirement Plan for Your Business

What you need to know to choose the type of retirement plan that will be most beneficial for your company and employees.

Start by thinking about your intentions, rather than different types of retirement plans.

Finding the best retirement plan for your business has everything to do with your goals. The very first step you should take is to identify what you are trying to accomplish with the plan. If you’re unsure of your goals, but just know you need a plan, ask yourself the following questions:

  • Is the priority to maximize the funding of your own retirement account?
  • Are you focused on attracting and retaining top talent by offering a competitive retirement plan?
  • Are you looking to reward certain employees more than others?
  • Are you looking to offer a vehicle for your employees to save for their retirement, even if you are unable to provide any funding at this time?

The best retirement plan is one that doesn’t get you into trouble and meets your financial goals.

Make sure you and your employees are able to gain maximum benefit from your retirement plan package, which means avoiding penalties by ensuring that your plan is designed and administered within legal compliance regulations.

Business owners come to the table with a concept or a special type of compensation in mind, such as prevailing wage. They know it saves on taxes somehow, but aren’t exactly sure how or what’s legal. That’s why it’s important to work with your TPA (third party administrator) to understand the scenario of your current situation, fit your needs within the regulations, and talk through plans that are available to you.

If you want your plan to exclude certain classifications of employees or types of compensation, for example, your TPA can walk you through how to properly do that within the compliance requirements. Your TPA will lay out the caveats to what you’re trying to achieve with your retirement plan and guide you through your options until you determine a design that aligns best with your goals.

Consider how employee demographics impact the types of retirement plans available to you.

Just looking at the sheer number of employees and turnover rate in your company could make some plans not worth the cost. And closely held companies with family members on the payroll have their own challenges and benefits in retirement plan design.

When multiple companies share common ownership, the IRS’ controlled group rules are either used to make the plan or the cause of it breaking. Under these rules, two or more companies with common ownership are considered a single employer for purposes of 401(k) nondiscrimination testing, including coverage.

With so many variables in the mix, it is important that your retirement plan TPA takes the time to get to know you and your business before laying out potential plans. A good TPA will ask you a number of questions including:

  • Do you expect your employees to participate in the plan?
  • Do you intend to make an employer contribution?
  • Do you expect to increase or decrease the number of employees you have?
  • Do you have significant interests in any other companies that have employees?

Often, businesses will build generous retirement plans to recruit and retain employees, while other companies may have a retirement plan strictly to avoid payroll taxes on prevailing wage contributions.

Review several retirement plan options before making a decision.

Get several plan proposals to see how these different concepts might pencil out for your company. Basic information about different plans are readily available, but speaking in hypotheticals and generalizations can only get you so far. That’s why you should request plan design illustrations from prospective TPAs that address your unique needs.

With custom plan design illustrations, you’re able to see actual dollar amounts and percentages related to your potential plan which will give you a complete understanding of each of the design options and allow you to make an informed decision about this increasingly important benefit program. With custom design illustrations, you’ll be able to see:

  • Visual illustrations of savings and contribution amounts
  • Comparisons of contribution amounts between plan types
  • Contributions that business owners can expect to receive compared to other employee groups

The right plan for any particular business is dependent on certain factors that can't be fully covered in a brief overview. With custom illustrations, you can confidently choose a plan based on your company's unique needs.

Learn more about the business retirement plan options available to you.

Go to the Retirement Plan Finder

Frequently Asked Questions About Choosing the Best Retirement Plan For Your Business

There are a number of questions that are common among business owners who are looking for the best retirement plan available for their business. Here are a few of the ones we often hear: