With many people working to overcome financial setbacks caused by the COVID-19 pandemic, more employers have been focusing their efforts on helping employees improve their financial wellness and save for the future.
An October 2020 study by the Employee Benefit Research Institute reveals that more employers are adapting their financial wellness solutions to better fit their employees’ needs. This includes offering advice or training on budgeting, debt management and planning for health care costs.
Practice owners who want to improve financial wellness for themselves and employees may consider adopting retirement plan benefits.
Adopting a retirement plan benefits both the employer and employees. In addition to attracting and retaining employees, retirement plans allow small-business owners to:
- Make tax-deductible contributions
- Receive a tax credit for new plans of up to $5,000 a year for three years for the cost of setting up a new plan
- Grow their contributions tax-free
- Access a Saver’s Credit for contributions made by low- to moderate-income employees
Well-known retirement plan options for small-business owners
Small-business owners have several retirement plans to choose from. A few well-known options are:
Payroll deduction IRA
For employers who don’t want to adopt a retirement plan, the payroll deduction IRA offers employees a simple and direct way to save by contributing to an IRA through payroll deductions.
Simplified employee pension
Employers to set up SEP IRAs for themselves and each of their employees. Employers contribute a percentage of pay for each employee, although they don’t have to contribute each year.
The SIMPLE IRA allows employees to contribute a percentage of their salary each paycheck and requires employer contributions.
Employees can choose to defer a portion of their salary instead of receiving that amount in their paycheck. Many 401(k) plans provide for employer matching or other contributions.
The IRS recently issued guidance with detailed information on available retirement plan options and recommendations to help small-business owners determine which plan best fits their company and employees. The guidance covers choosing and maintaining a plan and filing requirements. It also includes a list of plan resources.
Practice owners can also find specific guidance on how to maintain a retirement plan during economic downturns.
CalSavers enrollment required for employers without a retirement plan
Practice owners who do not have a retirement plan soon will be required by state law to enroll their employees in CalSavers, a voluntary retirement savings program for California workers who do not have access to a retirement plan at work.
Employees may choose not to participate or reduce or increase their payroll contributions, but employers must facilitate initial enrollment and send payroll deductions to CalSavers for each employee who does not affirmatively opt out of participating in the program.
California employers with 51 to 100 employees are required to register by June. Employers with 5 to 50 employees have until June 30, 2022.
Learn more about the CalSavers retirement savings program and how it affects dental practice owners.