Six Retirement Account Wins for Employers and Employees

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published 8 March 2024

Often, in the world of business, it's the seemingly simple tasks that prove to be the most challenging. Taking a moment to pause and evaluate a situation can be far from easy, especially for entrepreneurs who thrive on managing complexity. This ability to handle complexity is both a blessing and a curse.

In this article, we aim to make a compelling argument for why it's crucial to break away from the hustle and bustle of daily operations and focus on your retirement plan offering. Dedicating the time for this checkup may seem like a small step, but it has the potential to create a significant "win-win" scenario, benefiting not only you but also your team.

Creating wins for you, the employer

1. Attracting and retaining talent. Maintaining a well-structured retirement plan, such as a 401(k) or defined contribution plan, is now essential in the business landscape. In today's job market, employees actively seek out employers who provide robust and high-quality retirement plans, considering them as unique offerings.

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Evaluating and optimizing your retirement plan(s) can give you a distinct competitive advantage when it comes to attracting new employees and ensuring the satisfaction and retention of your existing workforce. By doing so, you not only reduce turnover but also save valuable time and resources that would otherwise be spent on recruitment and training expenses.

2. Income tax benefits. Employer contributions to retirement plans frequently come with tax advantages, including potential deductions that lower your company's taxable income. In some cases, there are additional tax incentives available to employers, like the Small Business Retirement Plan Startup Costs Credit, which can further reduce your tax liabilities. Leveraging these income tax benefits can translate into substantial savings for your company, freeing up resources for other critical business investments and initiatives.

3. Improved morale and productivity. Offering a comprehensive retirement plan can have a significant positive impact on employee morale and overall productivity. It's a tangible way to demonstrate your commitment to your team's long-term financial security, fostering a sense of loyalty and respect within the company. When employees feel that their employer is invested in their well-being, it often motivates them to perform at their highest levels, leading to increased productivity and a more engaged workforce.

Creating wins for your employees

The financial status of the average American's retirement savings success is diverse, but more often than not, these plans do not align with ideal levels. The complexities of life, including managing increased living expenses and competing financial priorities, often hinder individuals from achieving their retirement savings goals.

Therefore, promoting "education" about your retirement plan to your team can yield a significant “win for your employees." By providing your employees with the knowledge and tools they need to make informed decisions about their retirement savings, you empower them to take control of their financial future, further enhancing their overall well-being.

1. Income tax advantages. It's essential to consider whether your employees have a clear understanding of the financial impact of their contributions in terms of income tax. Do they comprehend how these contributions can result in income tax savings, and are they aware of how their paychecks may be affected? Over time, these tax savings can accumulate significantly, providing your team with an opportunity to build more wealth for their retirement goals.

Furthermore, investments within retirement accounts often grow tax-deferred, compounding the benefits and potentially helping your employees achieve their retirement objectives more effectively.

2. Employer matching contributions. It's important to ensure that your employees recognize the significant benefit of employer matching contributions in your retirement plan. Are they aware of the amount of "free" money they could be missing out on? By encouraging your team to maximize their participation in the employer matching program, they can substantially boost their retirement savings without incurring any additional cost. This is a valuable opportunity for your employees to secure their financial future with the added advantage of employer support.

3. Automated savings and discipline. Numerous retirement plans offer an "auto" feature that simplifies the process of saving consistently, allowing participants to steadily grow their retirement nest egg over time. Establishing a routine of regular contributions can assist employees in cultivating disciplined savings habits and actively preparing for retirement.

Educating your teams about the significance of allocating a percentage of their income to their retirement plans is another effective way to ensure that any raises or income increases during the year are automatically directed toward their retirement savings, promoting long-term financial security.

In conclusion, dedicating time to evaluate and plan, whether as an employer or an employee, is a wise and strategic investment of your resources. This process has the potential to yield significant benefits for both parties involved. Employers can leverage it to attract and retain top talent, reduce income tax liabilities and foster a culture of motivation and engagement among their workforces. On the other hand, employees who engage in this process can make informed decisions to maximize their retirement savings, diversify investments and take advantage of tax benefits and employer contributions.

Through careful consideration, well-informed choices and a steadfast commitment to financial well-being, both employers and employees can achieve meaningful "wins." The potential upside of helping your team secure a brighter future by establishing a robust retirement structure far outweighs any downsides.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Dennis D. Coughlin, CFP, AIF, co-founded CG Capital with Christopher C. Giambrone in 1999. He has been in practice since 1996 and works with individuals nearing retirement and those whom have already retired. Proud of his humble upbringing, Dennis shares his advice with the same core principles that he was raised with. When not in the office, you will find him with his family enjoying the outdoors.