Balancing Business Success with Employee Retirement Security

According to the Pension Rights Center, 56 percent of all civilian workers in the United States participate in employee retirement plans. The other nearly half of American workers cannot participate in these retirement plans simply because they are unavailable, per the AARP. While it is easy to point the finger at employers, their failure to implement these plans is understandable. After all, the creation of a retirement plan is a costly endeavor – one that may seemingly conflict with important business goals and objectives. According to the Department of Labor, this is a particularly pressing concern among 37 percent of small-to-medium sized businesses that do not create retirement plans due to cost limitations. While larger enterprises are more likely to implement these benefits, they face the same delicate balancing act as they align employee retirement goals with financial constraints and business objectives. Wisterm guides companies through this process with proven, effective retirement plan strategies. With their guidance, companies may be able to remain competitive while providing their employees with genuine financial security. Contact our offices to schedule a demonstration today.  

Why Should Employers Implement a Retirement Plan? 

Employee retirement plans provide a number of advantages – the most straightforward of which are enjoyed by employees. However, many of these advantages also align closely with business objectives in ways that might not be immediately obvious. 

Attract Top Talent 

Pew Trusts states that about one-third of all companies offer retirement plans primarily to attract new talent. Today’s employees clearly prioritize retirement plans when seeking new jobs. According to the Society of Human Resource Management, most employees would rather have a better retirement plan than more paid time off.  

Incentivize Productivity 

Retirement plans can incentivize employees to strive for higher levels of productivity, especially if the plans are directly linked to profits. Companies may choose to increase contributions based on financial performance within a given quarter, causing employees to feel more motivated to meet targets. The International Foundation of Employee Benefit Plans points out the documented correlation between workplaces with high productivity and those with robust employee retirement plans. 

Encourage Long-Term Commitment  

Retirement plans help companies communicate their long-term commitment to their employees. In return, these organizations receive equal levels of commitment from their workers. According to the Washington Technology Industry Association, employees are 40 percent less likely to quit within the first year if they have retirement benefits. The cost of recruitment can be high, and the Harvard Business Review states that the average company spends over $4,000 to fill each position in the United States. Investing in a retirement plan can help lower these costs while retaining key talent.  

Tax Benefits 

The Internal Revenue Service highlights a number of important tax benefits for companies that implement retirement plans: 

• Contributions to retirement plans by companies are completely tax-deductible 
• Assets within retirement plans increase in value without incurring any tax penalties 
• Companies can take advantage of certain tax credits after starting retirement plans 

Balance Retirement Plans With Business Objectives 

While there are many benefits to starting retirement plans, employers may still be understandably uncertain. Business owners have many business goals and objectives they want to meet and may worry that the time and money required to set up retirement plans may take away from their objectives and goals. Wisterm helps companies balance retirement plans with business objectives by implementing a number of effective strategies. 

A Customized Approach Based on Specific Objectives 

Effective retirement plans must be customized based on the unique needs and priorities of each company. Companies should consider the characteristics of their employees when creating retirement plans, asking questions such as: 

• What does the average employee at the company earn each year?  
• What is the age range across the workforce?  
• If companies also offer health plans, how many claims do employees file each year?  

These data points and many others are analyzed with powerful digital tools in order to create holistic, cost-effective retirement plan solutions. Demographics are an important aspect of retirement plan implementation that many companies miss. Integrating demographic data means there is no need to blindly select a “one-size-fits-all” strategy.  

The Power of Aligning Spending With Benefits 

Demographic data may also assist companies of all sizes with choosing retirement plans that align with spending needs. In order to maintain high levels of competitiveness, they analyze financial performance, investment lineups, total tax savings, and many other factors. Even small businesses in the United States can implement affordable retirement plans with fitting strategies. Each company can use its own unique financial constraints to help shape effective retirement plans for them.  

Ensuring Regulatory Compliance 

Regulatory compliance is an important priority for companies that implement retirement plans in the United States. While many organizations may be aware of the Employee Retirement Income Security Act of 1974 (ERISA), new regulations emerge on a regular basis. For example, the IRS updated its retirement plan limits in 2023 while also adjusting health plan regulations. If an employer’s retirement plan is disqualified for failing to comply with regulations, it may lose its tax-exempt status, which negatively affects the employee, the employer, and the plan trust. Specifically, the loss of the tax-exempt status can result in all three paying additional taxes on the contributions made to the retirement plan or on the plan trust’s earnings, per the IRS.  

Options for Retirement Plans 

Employers are not required to offer a specific retirement plan to their employees. However, most employers will want their employees to understand the retirement plan and how to plan for retirement. The IRS outlines a number of options for employers that wish to offer retirement plans. 

401(k)s and Simple 401(k)s 

401(k)s give employees the option to automatically set aside a portion of their pre-tax salary to a retirement plan. Often, the employer matches contributions. Employees may invest capital within 401(k) plans at their own discretion.  

Simple 401(k)s allow employers with less than 100 employees to offer those employees a tax-favored retirement plan. These plans do require the employer to make a matching contribution of up to 3% of the employees pay or non-elective contributions of 2% of each employee’s pay.  

Payroll Deduction IRA 

In cases where the employer is unwilling or unable to set up a retirement plan, they can instead allow payroll deductions for retirement. This would allow employees to have contributions to an Individual Retirement Account (IRA) directly withdrawn from their payroll and deposited to the IRA.  

Profit-Sharing Plans 

Profit Sharing Plans set aside a certain amount of money each year for the retirement plan. In most cases, this money comes from net profits. These plans are also sometimes called Stock Bonus Plans.  

Simplified Employee Pension Plans 

Also known simply as “SEPs,” Simplified Employee Pension Plans offer tax benefits to employees who wish to save for retirement using Individual Retirement Accounts (IRAs). As the name suggests, an SEP is one of the most straightforward retirement plans that an employer can implement.