As with offering your employees health insurance coverage, offering retirement benefits is a great way to boost your compensation package, and both attract and retain a valued workforce. In some instances, small business owners can even take advantage of retirement plans for themselves.
If you’re not sure whether offering retirement benefits to your employees is worth it, here are some of the advantages associated with doing so:
Enjoy tax advantages for your business
Congress wants to encourage employers to offer retirement benefit packages to employees, so there are some significant tax advantages to be had when you do
Keep your employees working hard for you
Research has shown that retirement benefits based on profits, can make employees more motivated within their role and more inclined to work harder and more effectively
Attract the best employees for the job
When it comes to attracting new employees, a retirement package may be the thing that makes them want to come and work for you, and not another company
Supplement your compensation package
Many small businesses have high start-up costs or little cashflow, but with a retirement plan, you can use it to supplement your compensation package
Save for your own retirement
Offering retirement benefits to your employees allows you to also take advantage of them and save for your own retirement
Do you need professional guidance when offering retirement benefits?
With the complexities of pension rules and bewildering tax aspects of retirement plans, it’s never a bad idea to seek professional help when offering retirement packages to your employees. That said, you should try to have a basic understanding of the different plan types and determine why you want to offer a plan, before consulting with a tax advisor or accounting professional:
All pension plans are one of two types = qualified or non-qualified, but they can be further divided into the broad categories of defined benefit and contribution plans, and hybrid plans.
If a retirement plan qualifies, it will meet the Employee Retirement Income Security Act of 1974 (ERISA) and Internal Revenue Code requirements, while also being qualified for some hefty tax benefits:
- Any income the plans assets generate, is not subject to income tax because the income is earned and managed within the framework of a tax-exempt trust
- Employersare entitled to current tax deductions for contributions to the plan.
- Participants of the plan are not required to pay income tax on the amounts contributed on their behalf, until the year that the employer distributes the funds to them
- In some instances, qualified plan beneficiaries are given special treatment when it comes to their taxes
If a retirement plan doesn’t qualify, it will not meet the requirements of ERISA and the Internal Revenue Code, and beneficiaries are not permitted to take advantage of preferential treatment when it comes to their taxes.
The majority of small business owners opt to offer their employees a retirement plan that is qualified as an employee benefit, and this is simply down to its tax advantages. However, if you would like to discuss your options in further detail, you can consult with an accounting specialist.