Looking Into Retirement?

During her first 18 years in business, Gae Veit left employees to fend for themselves when it came to arranging their retirements.

As CEO of Shingobee Builders in Loretto, Minn., Veit followed the same path as many other small-business owners. She pursued her daily business, invested her cash in the growth of her enterprise, and put the question of retirement planning on the back burner.

It’s not an uncommon phenomenon among entrepreneurs. “They are too busy running their business,” said Randy Berry, western regional manager at Fiducial, a provider of financial-services outsourcing for the small-business community. “They don’t see it as a priority, one thing leads to another, and all of a sudden 10 years has gone by and they still don’t have a plan.”

That’s a shame, says Berry, since the present tax laws offer financial incentives to employers who do provide retirement plans. Among other advantages, small businesses can receive tax credits of up to 50 percent for three years, with a maximum credit of $500 for each year, to offset start-up costs.

In spite of such incentives, many small businesses steer clear of retirement plans. Recent statistics by the Small Business Administration and the Employee Benefit Research Institute, a nonprofit public policy research organization, show that more than half of small businesses don’t know what types of plans are available to them and their employees. More than 30 percent have false impressions regarding the administrative burden involved in running a retirement plan. More than 70 percent of small businesses say they are unaware of tax changes that give tax credits for start-up plan costs.

Bottom line: Only 7 percent of small businesses say they want to start a plan soon, down from 17 percent just two years ago.

Why don’t small businesses offer retirement plans? Some think the plans will be too expensive, while others suppose the administrative hassles will be too great. In both instances, a little knowledge goes a long way. As to cost, the typical administrative fee for a 401(k) plan will run between $750 and $2,500 a year for a group of 100 employees. The administrator also may take a commission on contributions to the plan, but this does not come out of the business owner’s pocket.

As far as administration goes, “all the business owner needs to do is to contact a financial advisor and determine what kind of plan they want to have,” said Berry. “The plan provider typically will administer it or will have a third party administer it.”

Why bother? First and foremost, a retirement plan can be a significant recruiting tool.

Veit put her 401(k) plan in place six years ago, in an effort to compete with the other employers in her marketplace. As the level and quality of benefits rose in general among area employers, “we needed to be able to match what other people were offering, and even to go beyond that,” she said.

In addition to this, there are the tax benefits, of course. Finally there is the entrepreneur’s own future: In offering retirement benefits through the company, business owners also can save for their own retirement.

How to find a suitable retirement plan? Do your homework online, talk to friends and colleagues, and then start talking to financial planners. There are a number of products out there — including Simple-IRAs, the Simplified Employee Pension (SEP), or a 401(k) – and not all of them will be right for every business. Investigate plans to find one that offers a realistic investment strategy, while showing respect for employees’ individual risk tolerances.

Finally, let somebody else do the heavy lifting. Having paid about $1,200 to start a plan, an entrepreneur typically can step back and let the financial advisor handle the administrative tasks. That’s what Veit does, and she says it works just fine. “It’s not real labor intensive at all, once it is completely set up and operating,” she said.

Still, there is the money to consider. Veit for instance offers matching funds to bolster whatever her employees are saving. She sets the level of the match at the end of the year, depending on the profitability of the business, and while the benefit is by no means inexpensive, she said, it is a small price to pay for the recruiting and retention advantages she reaps.

Adam Stone writes extensively on business and technology issues. He makes his virtual residence at inkbiz@yahoo.com and his physical home in Annapolis, Md.

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