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:

Your retirement plan could last as long as your company if it continues to perform properly. Changes, however, should be considered whenever there are significant alterations to the company ownership, employee demographic, or intent of the benefit program. While 401k plans can start and stop more frequently, pension plans are committed to funding for 3–5 years.

Employers should contribute to retirement plans only what they want to contribute in order to meet their financial or tax planning goals. Sometimes the market demands that a 401k program with an employer match is in place for a company to find decent talent. Sometimes the additional contributions to employees are worth the cost to fully fund key employees for the year. The retirement plan should be used as an instrument for the achievement of financial goals.

Generally no, as long as the employer is interested in their separated employees taking their accounts with them. Separated participants should request a distribution form, complete it, and return it back to their previous employer to begin the process to transfer their money. Their previous employer will confirm employment status and submit the request, sometimes after TPA review, to the proper attention. This process can happen in two weeks for participant-directed accounts but up to a year or more for pooled accounts.

401k plans have regular entry dates or enrollment periods and newly eligible participants must wait for these dates before they are able to begin deferrals. These dates may occur as often as each pay period or as infrequently as twice a year. Refer to your Summary Plan Description for more information. Once you’ve met your eligibility requirements, you will have to wait for the next entry date to begin to participate.

Deferrals are voluntary in most cases so each participant will have the opportunity to decide how much of their pay is contributed to the plan each pay period. Some pension plans require a certain amount of pay to be deferred from each participant in order to be eligible for the pension offered under the plan and others automatically enroll newly eligible participants to a specified deferral percentage and may also include a provision to regularly increase this amount each year. Refer to your Summary Plan Description for more information.

Ultimately, the employer is responsible for providing information regarding how participants may be affected by the retirement plan they’re sponsoring. Employees have a right to request a Summary Plan Description and Summary Annual Report and, if applicable, the current safe harbor or auto-enrollment notice and 408(b)(2) fee disclosure notice. These disclosures should be able to answer their questions and are the only requirements employers must satisfy with regard to employee information about the plan.

The answer to this question may vary a lot from plan to plan. Some employers maintain pooled accounts for the plan which means they are the only ones able to direct the investments for the company as a whole. Other employers maintain service arrangements with financial advisors who may provide regular employee education about the plan provisions and investment elections, which the employee can use to make their own investment decisions. The fees for the investments are available at the custodian website in most cases and also on the mandatory 408(b)(2) notice disseminated annually for participant-directed accounts.

Sometimes retirement plans are too expensive to fund owners or targeted employees to the annual maximum contribution for the year. The trade-off would be access to payroll deferrals through a 401k plan only, with no additional employer contributions, or a safe harbor plan to allow for maximum personal contributions and a nominal mandatory employer safe harbor contribution. Other times, the plan works wonders for retiring owners of a company but making contributions to the younger, transitioning owners is not cost-effective. In these cases, the trade-off would be to fund the older owners primarily and provide contributions to the next generation to a lesser extent. A good TPA will work with you to determine the most important reasons to start a plan and work with you to determine if the trade-offs are worth the additional work and fees associated with this benefit program.

How to Choose the Best Retirement Plan for Your Business

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

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

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

Review several retirement plan options before making a decision.

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

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

1. How long should I expect to stay with the same retirement plan? How often can I change my retirement plan?

2. How much should employers contribute to retirement plans?

3. Is it difficult for employees to transfer funds when they leave?

4. Do I need to wait for an enrollment period to start my 401k?

5. How much money is taken out of my paycheck for my retirement plan?

6. Who is responsible for advising employees about retirement plans?

7. How will the retirement plan funds be invested? What are the fees associated with the investments?

8. What trade-offs might you need to make to meet your goals?

Choosing the right plan

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