Pros and Cons of Offering a Retirement Program

Are you trying to decide if the juice is worth the squeeze when it comes to implementing a corporate retirement plan for your employees? Here’s a brief list of some pros and cons to consider when making that decision.

Pros

- Attract and retain top talent: Offering a retirement plan program puts you in a great position to get top talent to join your team. Things like an employer match or profit sharing program can offer “free” money, or a pay increase, to your employees and can make them feel appreciated for their work. A 401(k) offering, or lack thereof, may be a key factor for a new hire making a decision to choose you; it may be something that a competitor has in their benefit offering, should your candidate go elsewhere.
- Tax Deduction: Depending on how you pay for the administration and advisory services of your program, you may qualify for a tax break if you are invoiced and pay for them directly. These expenses can typically be counted as a business expense at tax time. The money deferred by your employees can also count as a deduction that could potentially lower income tax by growing tax-free or deferring to a future year when income is lower. It’s a win-win!
- Less Expenses for Older Employees: By allowing an option for employees to save money for retirement, educating them on the benefits of saving, as well as incentivizing them to do so, your older employees will be better prepared when it comes time to retire. By not having this option, you could potentially see a spike in your corporate health care premiums as your work force gets older and needs more treatments.
- You Get to Save, too!: By offering this benefit, you as the Plan Sponsor or business owner are able to utilize it as well. You can start putting away some of that hard earned money to pay yourself in retirement. We’re thinking in the best interest of your employees, but BONUS: you get to use the benefit and any match or profit sharing that comes with it!*
- Help existing employee save for retirement (Social Security is not enough!): The retirement program is the best way to help your employees prepare themselves for retirement. Offering a 401(k) plan is a great benefit for your employees and is the only savings vehicle that allows you to defer up to $18,500 (2018) of your own money pre-tax, and up to $55,000 including employer contributions.

Cons

- Costs to the Company: As with any product or service, offering a retirement program comes at a cost to the employer, the participant, or some combination of the two. There will be a fee associated for recordkeeping and administration, as well as fiduciary advice, all which can be passed on to participant accounts or paid by the employer (typically). There is also an investment expense based on the funds selected, which is charged to the participant utilizing the fund. Retirement programs undergo an extensive amount of legal scrutiny, so these fees should be monitored and maintained at a reasonable amount for services rendered.
- Fiduciary Liability: When you sign the documents to have a retirement plan in place, you (as the Plan Sponsor) assume a certain level of liability that you will work hard to make the best decisions about the plan (re: investments, education, costs) that you can for the sole benefit of the plan participants and their beneficiaries. You can hire a 3(21) or a 3(38) Investment Advisor to mitigate these responsibilities and set you up for a successful program.
- Administrative Responsibilities: Like any other benefit, there will be a need for someone at your company to support the retirement program. There are administrative duties such as payroll processing/upload, notice communications, selection and monitoring of vendors, etc. Though there are responsibilities that come with this benefit, the providers that you choose should be able to make this simple and clear.

At the end of the day, you have to make the best decision for your corporate culture. If you’d like to discover if offering a 401(k) plan is the right option for you and your company, feel free to contact PGR Solutions at 916-932-1219.

* Limits are subject to annual testing and non-discrimination rules.

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