We’ve spoken before about how 401(k) benefits are becoming easier to access, but we wanted to share the struggles of a client of ours named Bradley. Bradley wanted to institute 401(k) benefits to his employees, but it all sounded like Greek to him. He was completely confused. He wasn’t sure what he should get. In addition, he had no idea of how he was going to explain it to his employees. Sound familiar?
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Bradley runs a successful ecofriendly–cleaning business. The company has several locations and roughly 30 employees. He, like 90% of all business owners, felt the benefits outweighed the hassles of running a retirement plan. Bradley knew it was important when it came to attracting and retaining talent. But he was overwhelmed by the complexity. He wasn’t sure which to choose, nor how best to communicate whichever plan he chose to his employees.
Bradley Wasn't Alone with 401(k) Struggles
According to a recent Nationwide study that touched on this and other business issues of 2019 wrote:
[…]business owners viewed 401(k) plans as beneficial to both their individual businesses and their workforces. Most cited the importance of the plans in attracting top talent (88%) and improving employee retention (86%) and agreed that workers see 401(k) plans as a necessary benefit (84%). An overwhelming majority (88%) cited the tax advantages of the plans, which benefit small businesses and workers alike.
And yet, nearly ½ of those surveyed mentioned that the cost and complexity of the plans were stumbling blocks. In addition, about the same percentage struggled with how best to communicate those plans to their employees.
How We Helped Bradley
The first step was to sit down with Bradley and outline exactly what he wanted out of his plan. We went through the different options. Why? Many business owners say they want a 401(k), when they really mean they want a retirement plan. There are number of option available to small employers, and sometimes those other options are better. Here is a sample from Fidelity.
In fact, once we went through the options, Bradley realized that a Simple IRA was what he really wanted vs. a traditional 401(k). It was less paperwork and administrative burden. So, that was a key win. Once we knew what plan he wanted, we were able to work with our network to provide three providers, who we thought would be good fits. The reason we selected who we did was we wanted those who had employee education materials, which he could easily adapt and send out.
What to Do if You’re Facing 401(k) Struggles
If you want a retirement plan for your employees for all the reasons stated above, the first step you should take is to decide which plan is right for you. Do not automatically assume a 401(k) is the best and only option. If you do, you may saddle yourself with significant complexity and administrative costs.