Employees are a company’s most valuable resource. They are the ones who make things happen, and they deserve to be treated well. A retirement plan is one of the best ways to show your employees that you care about them and creating a plan to incentivize the retention of your employees help everyone.
Not only does it provide them with financial security in their golden years, but it also incentivizes them to stay with the company longer. In this blog post, we will discuss four retirement plans that your employees will want to stay for.
Create a Balance “Rich Plan”, That Incentivizes Longevity in the Employees
When designing a retirement plan, it is important to find the balance between creating a “rich plan” and incentivizing longevity in the employees. A rich plan offers generous benefits that encourage employees to save for their retirement.
On the other hand, if the benefits are too generous, employees may become complacent and not work as hard. It is important to find the right balance so that employees feel appreciated and are also motivated to stay with the company for a long time.
Understand What and How a Vesting Schedule Works and the Benefits for the Employer
A vesting schedule is a timeline by which an employee becomes fully vested in their retirement plan benefits. This means that they have ownership of all the benefits they have accrued and can withdraw them without penalty. There are two types of vesting schedules: cliff and gradual.
With a cliff vesting schedule, employees become fully vested after completing a certain number of years with the company. This can be good for employers who are looking to save benefits for loyal employees.
A gradual vesting schedule, on the other hand, allows employees to vest gradually over a period of time. This is a more gradual process and gives the employees a target to reach down the road and incentivizes them to stay longer. The hope is that the longer the vesting schedule, the longer the tenure of your employees.
Retirement Plans That Allow You to Use a Vesting Schedule
Here are 4 plan types that will make your employees want to stay with your company:
1) Traditional 401k
A Traditional 401k is a type of retirement plan that allows the employer to design a plan from scratch. This means that they can create a matching and vesting schedule based on their goals. Whether it’s for employee retention, or to fit the plan within the company’s budget. The benefits of a Traditional 401k include:
Roth or Pre-tax contributions.
Employees can contribute up to $20,500 per year (2022)
Employers can design a plan on budget and to incentivize their employees.
A Traditional 401k is a great option for employers who want to create a vesting schedule. They can match employee contributions on a gradual or cliff vesting schedule. This allows employees to become fully vested in their benefits over time and incentivizes them to stay with the company for a long period.
2) QACA (Qualified Automatic Contribution Arrangement) Safe Harbor 401k
A QACA is a type of Safe Harbor 401k that has a 2-year, cliff vesting schedule. As opposed to the Standard Safe Harbor, that has an immediate vesting schedule.
This plan is great for businesses with high turnover to incentivize the employees to stay longer, but also to keep any matching contributions within the company if an employee were to leave within the two years.
Its benefits include:
Roth & Pre-tax contributions.
Employees can contribute up to $20,500 per year (2022).
Employees are vested after 2 years.
Allows the owners and HCEs to maximize contributions regardless of employee contribution rates.
3) Profit Sharing (stacked on top of any 401k plan or stand-alone)
A profit-sharing plan lets employers offer profit-sharing plans as a way to attract and retain employees. Profit sharing is a great option as employees like the idea of being apart of the growth and success of the company.
Other benefits to profit sharing include:
Employees feel appreciated by their employer.
Gives employees a share in their company’s profits based on its quarterly or annual earnings.
Employers have the ability to create a separate vesting schedule versus the 401k plan.
4) Cash Balance Plan (also can stack on any 401k plan or stand-alone)
Cash balance plans are a type of defined benefit plan that can be used as either a pension or as a supplemental retirement plan. It is a great solution to highly successful business owners with a smaller employee pool.
Cash balance plans have many benefits, including:
Substantial tax reduction on the employer.
Creates a highly sought after employee benefit to recruit high-quality employees.
Employees can roll the funds into an IRA once the plan has shut down, or they leave the company.
As an employer, you should consider implementing one (or more) of these plans as part of your overall compensation package.
If you are self-employed without employees, keep in mind that starting a solo 401k plan allows you to save tax-free for retirement and offer employer contributions to yourself.
Building a custom plan based on the goals of your company is a good practice of any employer. Whether it’s tax savings or the recruitment & retention of high-quality employees, our 401k experts can help you design the best plan for your goals.
If you need help finding which plan makes sense for your company, schedule a plan discussion with us
Kurt S. Altrichter, CRPS®
Fiduciary Advisor | President