In a competitive job market, it’s not just about the salary you offer to your employees. In fact, employees may even choose a job that pays less if it comes with a great retirement plan. Setting up an employer-sponsored plan is the best way to keep your employees, not least of all because they’re building wealth for themselves while they’re working for you.

There are legal and administrative challenges to setting up a retirement plan at work. We recommend working with a trusted financial advisor to talk about your options and responsibilities. The retirement plan must satisfy certain criteria to be qualified under IRS guidelines. Your payroll will also look different, especially if you match some of your employees’ contributions.

When planning for retirement, you must differentiate between a traditional 401(k) and a Roth 401(k). Traditional retirement plans use pre-tax dollars to save wealth for the future. That means your employees are not taxed on the money they contribute to their retirement account, up to the contribution limit. The money then grows in a tax-deferred account. When the employee retires, they will receive distributions and pay taxes on that income.

A Roth 401(k) works in reverse as far as the tax benefits go. Employees can contribute to a Roth 401(k) with money that has already been taxed. They will not receive a deduction on their income tax return. However, in retirement, the income they receive from the Roth 401(k) is generally tax-free.

The IRS encourages all individuals to save money for retirement. They also want to make sure that your retirement plan doesn’t discriminate. Your employer-sponsored plan must qualify under IRS rules. While not all of your employees must take part in the plan, you can’t discriminate. In particular, the IRS tests each plan to ensure the average contributions from your highly paid employees doesn’t exceed 2% more than the average contributions of your other employees.

Safe Harbor Plans prevent discrimination by design, which ensures you follow the requirements set forth by the IRS. You can do this by using one of the following three options under the Safe Harbor Plan rules:

1. Basic: Match 100% of the first 3% of compensation and 50% of the next 2% of compensation
   
2. Enhanced: Match 100% on the first 4% of compensation
   
3. Non-elective: Contribute 3% to all eligible employees

Retirement planning for your employees is complicated. We’re here to help you every step of the way. Call us to discuss your company’s situation. In the meantime, the answers to these questions may be a great starting point for you.

A cross-tested plan allows the company to allocate a higher contribution to the owner and other highly compensated employees while still providing benefits to the rest of the staff. Allocation rates can be much higher than 5% of your compensation, too. A cross-tested profit-sharing plan can be created in conjunction with a Safe Harbor Plan.

Yes, you can. Defined benefit plans provide fixed benefits for your employees when they retire. These pension plans used to be the norm, but are more costly to administer than defined contribution plans. Defined contribution plans, such as the (401)k, put the burden of asset performance on the employee. If you’re interested in setting up a defined benefit plan, we can help you get started.

A cash balance plan is a type of defined benefit plan in which the employer makes contributions into the individual employee’s retirement account. The company can receive tax benefits for its contributions. When the employee retires, they have different options for receiving funds from the account. A cash balance pension plan is a guaranteed benefit for retirement, which is more attractive than the traditional defined contribution plans.