While it was a good year for launching businesses, it was a lousy year for hiring. By 2021, more than 47 million Americans will have left their jobs willingly, according to the Bureau of Labor Statistics. This reflects an unequaled workforce mass exodus prompted by the pandemic, known as the Great Resignation.
Furthermore, the Great Resignation has prompted small companies to introduce new retirement plans and improve existing ones to attract and retain employees. Many small businesses have realized the importance of retaining talent whenever possible. As a result, small business owners realized the importance of bonus offerings to attract and retain employees.
According to Glassdoor, 52% of job seekers say perks and incentives are essential factors they evaluate before accepting a job offer.
Furthermore, nearly 80% of workers would choose new or enhanced benefits over a wage raise. As workers approach retirement age, financial security becomes increasingly important, and they require retirement investment, such as a contribution match in their retirement plan.
The ability to match or contribute to a retirement plan such as the 401(k) demonstrates that a business is investing in its employees’ long-term financial success. By itself, that can be a powerful attraction and retention tool. State-mandated retirement plans and the creation of pooled employer plans are also making it easier for small firms to provide retirement benefits.
Auto I.R.A.s and state-required retirement plans
Some states now have regulations mandating small firms to offer their employees retirement benefits. To address this legal need, state-mandated retirement schemes were established. In general, firms might follow these regulations in one of two ways.
Their first option would be to enroll their employees in a state-sponsored retirement program. Otherwise, they might seek private-sector sponsorship for their initiative.
Auto-IRA enrollment programs have begun in eight states. Automatic I.R.A. programs are in place in Oregon, Illinois, and California, with Connecticut just starting. Mandatory retirement plans are currently in effect in New Jersey, New York, Maryland, Virginia, Maine, Washington, and Colorado. Small companies unable to provide their programs might benefit from a simple, no-cost savings plan for their employees.
Alternative retirement plans are now available that are more appealing.
An employer-sponsored pooled retirement plan (P.E.P.) is a new retirement savings plan. They were established to allow retirement plans to become more cost-effective and beneficial for small firms and workers. For some business owners, a P.E.P. might be the appropriate alternative in helping them, and their workers obtain retirement security and satisfy their business needs.
P.E.P. has developed a new paradigm to enable smaller businesses to achieve executive scale economies. It does that by limiting several of the hurdles businesses typically experience when they want to offer a plan, such as limiting fiduciary liability, offering 3(21) or 3(38) investment advisory services, and offloading many of the administrative duties to a 3(16) administrative fiduciary. Some PE providers even enable 360 connectivity with major payroll platforms, removing the need to manually submit payment information. It also gives small firms access to scalability advantages while making it easier to join or provide a retirement plan.
Market-private providers see an increase in interest. They are becoming more creative in developing platforms and products such as the I.R.A. and 401(k) to market to employees in those states. Those states initially perceived it as a competitive threat but now see it as a tremendous financial opportunity. Small firms were the most enthusiastic about P.E.P.s in 2021. This trend is expected to continue in 2022 as the labor market tightens and additional states pass laws for company retirement plans.
Significant benefits for small enterprises
Offering a retirement plan benefits firms and avoids noncompliance penalties. Small businesses may find it challenging to comply with these mandates. As a result, it is preferable to seek the assistance of a counselor to make sound business judgments.
Whether you’re choosing a state-mandated program, P.E.P., or other private market programs, an adviser can assist you in identifying the incentives and benefits ideal to recruit and retain talents.
As more state mandates take effect and more P.E.P. providers enter the market, retirement plans are becoming more accessible to small businesses and a requirement.