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