Small-business owners have a lot to think about, and when states started passing laws forcing them to offer retirement plans to employees, it gave them more to think about. At first glance, having to stay in compliance with more laws may seem like a bad thing. But if you look at it slightly differently, you may realize that you can benefit from your state’s retirement plan mandate.
Everyone’s Doing It
A retirement plan is a benefit. You may think it’s not, because you’re being forced to offer it. But wages are beneficial too, and you are required to pay those as well. Regardless of whether you want to call retirement mandates benefits, the bottom line is that every business owner who meets the state’s requirements must offer a retirement plan. So, like wages, what is happening is that workers are shopping around for the best deal for them. How can you play (and win) this game?
Nearly half of all businesses in the U.S. are small businesses. As such, they are exempt from many of the rules that larger businesses must follow, the reasoning being that if these rules applied to small businesses, there wouldn’t be any, because the costs and the time associated with following the rules would be too onerous. The ability to open your own business and eventually become successful (and possibly even rich) is the concept that America was founded on. Never mind that you need to find a lender to start the business and that most fail within 10 years — everyone who starts one plans to be the exception.
You may have researched your field and your options carefully before starting down the path to becoming a sole proprietor. But there are always pitfalls along the way. Maybe you opened a coffee shop and the tenant in the big office building across the street pulled up stakes and moved across the border. Maybe you used to make jewel cases for CDs, and then they became obsolete. Maybe you started a tech, accounting or another kind of firm and now the state wants you to provide retirement plans to all your employees.
The last scenario is the best one, because state-mandated retirement plans are not exactly ruinous to small businesses. It’s not like you have to sponsor your own retirement plan for your employees — you merely have to ensure employees can access the state’s retirement plan. In most states with retirement mandates, this means automatically enrolling all your eligible employees in the plan (they are allowed to opt out).
Separating the Wheat from the Chaff
State-sponsored plans can affect how level the playing field is among small businesses that are in competition with each other. Let’s stick with the coffee shop example. Say there are three coffee shops downtown, and you own one. None of the shops offers benefits, and all pay about the same. Employees cycle through them, hoping one is better than another. Other companies in town that hire unskilled workers offer a retirement plan, and the best workers are drawn to these companies, leaving the coffee shop owners with the rest.
But now there is a state mandate for retirement plans. Employees can get them anywhere — they don’t need to seek out employers that offer them. Suddenly, you can better compete with these other employers. The quality of your workforce may improve. It would, however, theoretically improve equally with the other two coffee shops. How could you differentiate your shop?
State mandated retirement plans are much better than no plans, but as with government-run health care, the private sector can probably do better. State plans are the bare bones, the bottom of the barrel. But only companies with no plan are required to offer them. If you have your own retirement plan, you can turn your nose up at the state plan.
Get a Leg Up
You may not have fantasized about starting a retirement plan for your employees, but now may be the perfect time. The stumbling block for many small businesses has been the cost and the expense of starting a plan. But that’s why we founded 401GO — to help small businesses start retirement plans quickly and easily. While other, large financial companies take weeks or even months to get plans up and running, you can get your plan started with 401GO in as little as 15 minutes. And the costs are minimal. Think about the caliber of employees you can attract with your very own retirement plan.
And if we dare imagine a benefit even sweeter, you may want to offer some type of employer match as well. The thing about state-mandated plans is that they are IRAs that belong to the employee — thus, workers have no incentive to remain at the same company the way they do if there is a company match and a vesting schedule. Not only will potential employees find your company more attractive for having your own retirement plan and offering a company match, they will have more respect for you, your business and how you manage it. Your employees will view you in a less adversarial way, and look at you more as a benevolent leader.
A Few Do’s and Don’ts
If sponsoring your own retirement plan doesn’t sound feasible for you, brainstorm other ways you may be able to set yourself apart from the competition in order to attract better talent. Can you afford to pay higher wages? A flexible schedule is important to job satisfaction. Treating employees fairly and respectfully is always appreciated. If you operate a food establishment, allowing employees to eat and drink for free is probably a worthwhile offering, but if you don’t, FYI, few employees appreciate free pizza or coffee as much as a retirement plan or some cold, hard cash.
Think about what would work best for you, and don’t hesitate to contact 401GO for help and more information about sponsoring a retirement plan at your small business.
