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The Truth about Establishing a Retirement Plan at Your Business

Employee Benefits

Preparing for retirement seems to be a challenge for both employees and business owners. The median retirement savings for families is less than $5,000, and 60 percent of families don’t even have savings in plans like a 401(k) or IRA, according to a 2016 government report. Part of the issue could be due to the fact that many employers aren’t offering their workforce the option to save for their retirement years. A recent Paychex Small Business survey confirmed this, finding that just 53 percent of businesses do not have a retirement plan for employees, whether due to the belief that they couldn’t afford to sponsor a plan or another common misconception.

Given these numbers, it’s not surprising that Americans aren’t adequately preparing for retirement. But 401(k) plans today are built to fit into a business’s scope and budget, and plan administration doesn't have to be a hassle, especially if you include 401(k) management in your payroll operations.

Retirement programs that fit a small business

Establishing a 401(k) plan is a great way for any company to make it easier for their employees to prepare for retirement. Employees can enroll in the plan and contribute via payroll deductions right into their 401(k). Once the plan is in place, some additional features can also increase employee participation, such as:

  • An automatic enrollment feature that helps make the process of having a plan relatively painless. Employees can opt out if they do not want to participate.
  • An auto-enrollment escalation feature increases employees' automatic enrollment contribution by a certain percent (1%, 2%, etc.) annually, so they can save more over time. Often this incremental increase in contributions does not have a considerable impact on take-home pay, and employees don’t need to take any further action for the change to be made.
  • A matching contribution from the employer, which may entice more employees to enroll in the plan. Employees who contribute themselves would receive a company match on their contribution up to a certain percentage as defined by the employer.

Retirement planning next steps

You and your employees can get retirement planning off to a good start by:

  • Getting organized: If you have worked at various companies over the course of your career, you may have multiple retirement and pension accounts with former employers. Make a list of these old accounts and develop a strategy to consolidate them.
  • Checking your Social Security benefits: Calculating your benefits is an important step when thinking about retirement. Use a benefits planner to help you understand what your benefits will be if claimed at various ages.
  • Planning for the unexpected: While working through to retirement age may seem like a solid plan, an unexpected event (medical event, layoff, etc.) could prevent you from doing so. Explore your options for replacing income and covering healthcare costs in these types of situations.
  • Understanding taxes as they relate to your retirement plan: Withdrawing from retirement accounts can be complex when it comes to taxes. Different types of accounts like a 401(k), IRA, and annuity accounts are in different investment categories and often have unique tax and distribution rules. A tax or financial advisor can help you make the right choices based on your accounts and help you protect your financial health in retirement.

Establishing a retirement plan may seem like a challenge initially. But the potential consequences of you and your employees not having enough savings for retirement outweigh any perceived struggles of getting a plan up and running. Consider working with a service provider that can help you find the right retirement plan for your company and budget, and make the plan you do choose easy to establish and manage.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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