Options For 401(k) Plan Sponsors
Qualified retirement plan accounts can be re-purposed to create emergency savings solutions, such as including after-tax contribution accounts and deemed IRA accounts. Employees can choose to contribute and may receive tax benefits. Employer matching contributions may be possible. These accounts are controlled by the employer and tend to be more complex to implement and administrate.
Employers also have the option to implement emergency savings fund solutions as an out-of-plan workplace benefit. These programs are managed by financial institutions that take care of recordkeeping and administration. The accounts can be funded through payroll deduction and act as a complementary savings vehicle to retirement savings.
A recently recognized benefit is that emergency savings can protect retirement savings—which many people turn to in emergencies—and that can help improve retirement outcomes. No matter how emergency savings solutions are structured, they offer a wealth of benefits, helping to improve workers’ financial health and boosting engagement, productivity, loyalty, and satisfaction.
Low cost retirement plans appeal to small business owner clients.
In a March interview with Mary Louise Kelly of NPR, destination restaurant owner and chef Amanda Cohen said, “We’ve all sort of had a year to reflect on how we want to run our businesses and how we can change them…I’d like to set up some more programs so my employees have a bit more support…I think there’s so much more we can do for our employees.”
After financial education and counseling, an important way that smaller employers can support employees’ financial health is by introducing workplace retirement plans. While the majority (85%) of companies with 100 or more workers have access to retirement plans through work, almost half (47%) of those at smaller companies do not.
Balancing company finances and employee programs can be tricky. However, there are a variety of workplace retirement plans designed specifically for smaller businesses that need to keep costs low. These include:
• Savings Incentive Match Plans for Employees (SIMPLE) IRAs, which can be affordable solutions for employers with 100 or fewer employees.
• Simplified Employee Pension plans (SEP IRAs), which are typically attractive options for sole-proprietors and family-owned businesses.
• Payroll Deduction IRA plans, which are cost-effective options with no contributions or plan-level reporting for the employer.
The SECURE Act has also made multiple employer plans (MEPs) more attractive to companies that prefer to share a qualified retirement plan, as well as the expenses and responsibilities, with other companies.
Small rewards today can lead to bigger rewards tomorrow.
Advisors have an opportunity to help companies that are recovering from sometimes dire financial circumstances by educating them about low cost retirement and financial wellness solutions. The reward today may be relatively small, but it has significant potential to grow over time. Building strong relationships today may help you win additional business as companies grow, employee needs change, and retirement and financial wellness programs expand.
In 2021, financial advisors are marshalling their considerable knowledge to help Americans rebuild financial and retirement security, in many cases, starting through the workplace.
Pete Welsh is Head of Retirement Services at Millennium Trust Company LLC. He has spent most of his career in the retirement industry, building relationships and working closely with recordkeepers, TPAs and other organizations. Millennium Trust Company performs the duties of a directed custodian, and as such does not offer or sell investments or provide investment, legal or tax advice.