Q&A ON
OFFERING 401(K) Plan
by Transamerica Retirement Services
For hard-working Americans whose companies do not offer a retirement plan, retirement income will likely come from sources such as Social Security, which typically only covers about 37% of an average retiree’s income, and personal savings and investments.
According to the Eleventh Annual Transamerica Retirement Survey, only 81% of small business employers, with 10-499 employees, reported that they provide a 401(k) or other retirement savings plan for their employees, compared to 92% of large employers, with greater than 500 employees. There are many reasons for the disparity: a lack of financial or administrative resources, a sense that the company is too small to offer a plan, company management is not interested, concerns about cost, concerns about fiduciary liability, and administrative complexity.
Many small-business owners may be intimidated by the prospect of offering a retirement plan and might have questions. The following question and answer section may help put business owners at ease by offering them a clearer view of the benefits of offering a 401(k) retirement plan; in particular, the advantages of sponsoring a retirement plan under a Multiple Employer Plan like the one offered by the Non-Ferrous Founders’ Society (NFFS) are addressed.
Q. Is offering a retirement plan expensive?
A. With today’s Multiple Employer Plans (MEPs), small businesses may receive the economies of scale that have generally been reserved for large businesses. A Multiple Employer Plan, also referred to as an MEP, is a retirement plan for businesses that typically have a common interest, but that are not commonly owned or affiliated. These businesses are referred to as “Adopting Employers” when they elect to join the MEP. These plans can be defined contribution (DC) or defined benefit (DB) plans.
The chief advantages of sponsoring a retirement plan under an MEP are the savings in administrative costs and burdens. The MEP Sponsor – in this case, the NFFS - is responsible for the administration, and the Adopting Employer does not need to be bothered with it. An MEP files a single 5500, so the costs of preparing that 5500, as well as other plan related costs, such as legally required amendments, can be spread over all the Adopting Employers. This may result in major savings to the MEP Sponsor and all Adopting Employers compared to the costs of maintaining a standalone plan.
14 • The Crucible November/December 2011
Q. What are the tax benefits of offering a 401(k) retirement plan?
A. Employer contributions are typically deductible on the Adopting Employer’s federal income tax return to the extent that the contributions do not exceed the limitations described in the Internal Revenue Code (IRC). In addition, contributions have to be made in accordance with the terms of the plan and must meet other IRS requirements. Interested employers can refer to the Retirement Plans for Small Business (Publication 560) at
www.irs.gov/pub/irs- pdf/p560.pdf for more information about deduction limitations.
Q. How important is a 401(k) retirement plan to my employees?
A. Employees find retirement plans extremely valuable, and to drive this point home, here are a few statistics. According to the results from the Eleventh Annual Transamerica Retirement Survey:
• 64% of employees whose employer doesn’t offer a retirement plan said they would likely leave their current job for a company that offered one.
• 47% of employees said they’d prefer a job with excellent retirement benefits over a higher salary.
• 90% of employees said it is important that a company offer a 401(k) plan or other employee self-funded plan.
Q. I have a small business, how can I possibly handle the administration and paperwork involved with offering a 401(k) retirement plan?
A. By participating in a Multiple Employer 401(k) Plan with a quality provider, virtually all retirement plan administrative tasks can be offloaded to the MEP Sponsor. Tasks that can be shifted may include: distribution processing, due diligence duties, plan compliance, nondiscrimination testing, annual reporting, participant education and enrollment, and participant assistance.
There are many other benefits of offering a retirement plan to your employees. For more information, speak with the Non-Ferrous Founders’ Society today or send an e-mail to
SpecialMarkets@transamerica.com
Transamerica Financial Life Insurance Company is an affiliate of Diversified Investors Securities Corp. Transamerica Retirement Services and its representatives cannot give ERISA, tax, or legal advice. This material is provided for informational purposes only based on our understanding of material provided and should not be construed as ERISA, tax, or legal advice. Clients and other interested parties must consult and rely solely upon their own independent advisors regarding their particular situation and the concepts presented here. Although care has been taken in preparing this material and presenting it accurately, Transamerica Retirement Services disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it.
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