SBAM’s Pooled Employer Plan Offers a Robust Solution for Your Employee Retirement Needs

Finding the right retirement plan to attract and retain employees is challenging for small business owners. And to compete with bigger companies and corporations, small businesses have to offer a robust employee benefit package.

When you consider retirement plan options, 401(k) and SIMPLE IRAs are two popular choices. However, many small businesses shy away from offering a 401(k) due to concerns about the time, cost and risk involved. But there is a viable solution for small businesses.

In this article, we break down these potential challenges and explain how SBAM’s Pooled Employer Plan (PEP) offers a robust option for your employee retirement needs.

Advantage of a 401(k) Over a SIMPLE IRA

There are many advantages of a 401(k) when compared to a SIMPLE IRA including higher contribution amounts, tax advantages, potential cost savings and flexibility in plan features.

With a SIMPLE IRA, employers must make either matching contributions up to three percent of an employee’s compensation or fixed contributions of two percent of compensation for all eligible employees, ensuring that employees receive contributions regardless of their participation.

With a 401(k) plan, employers have the flexibility to choose matching contribution levels, which can be adjusted according to the company’s financial situation. You choose to make matching, non-elective or profit-sharing contributions, or opt not to contribute at all.

There is also a greater savings potential for your employees. The 401(k) contribution limits are higher than those for SIMPLE IRAs. For 2024, the contribution limit for 401(k) plans is $23,000 (or $30,500 for those aged 50 and older), compared to $15,500 (or $19,000 for those aged 50 and older) for SIMPLE IRAs.

Challenges of a Single Employer 401(k) Plan

While a 401(k) is more attractive than SIMPLE IRAs, many small business owners have concerns about the challenges they may face when offering one to their employees.

Small business owners often lack a deep understanding of their fiduciary responsibilities, which include acting in the best interest of plan participants and managing plan assets prudently. Managing a single employer 401(k) plan requires substantial administrative work, including compliance testing, filing forms and recordkeeping. Failing to meet these responsibilities can lead to legal consequences and financial liabilities. Employers also need to ensure that employees understand the benefits and details of the plan, which require time and resources.

The initial setup and ongoing administrative costs can be prohibitive for small business owners who are dealing with various other expenses and need to maintain the financial health of their company. And while beneficial for employees, matching contributions add to the overall expense for the business.

State-Mandated Retirement Plans

State-mandated retirement plans are programs designed to ensure that employees, particularly those in small businesses, have access to retirement savings options. House Bill 5461, introduced by Democratic State Representative Mike McFall, seeks to establish a state-facilitated retirement savings program in Michigan. Workers whose employers don’t offer retirement benefits would automatically be enrolled into the program. Businesses that don’t comply could potentially incur state penalties.

Unlike 401(k) plans, state-facilitated IRAs are not eligible for up to $16,500 in SECURE 2.0 Act tax credits. Their contribution limits are not as high as 401(k)s. Many state programs also require the employer to do their own plan administration — filing, reporting, adjusting contribution limits and more. This can be burdensome for smaller businesses that don’t have the time or staff to do com- plex plan management.

This bill is currently in the House Labor Committee, and SBAM takes the position that mandates are harmful and costly for small businesses and are not effective solutions. We will continue to monitor the status of state-mandated plans in Michigan and keep you informed.

Our 401(k) Solution for Your Small Business

Pooled Employer Plans (PEPs) allow multiple employers to participate in a single 401(k) plan, sharing administrative costs and reducing individual burdens. This balanced approach can make 401(k) plans a more accessible and attractive option when compared to a single 401(k) or SIMPLE IRA, and you will avoid the requirements involved if a state-mandated plan is implemented in Michigan.

By leveraging the SBAM PEP, small businesses can offer robust retirement benefits while managing costs and responsibilities effectively. We offer you a simplified, low-cost 401(k) option specifically designed for small businesses, with lower fees and simplified structures:

• Start up plans may be eligible for up to a $5,000 tax credit to cover the annual administrative fee (for three years).
• Additional $500 annual credit for three years when a business establishes a retirement plan with automatic enrollment.
• No initial set up fees.

Our program takes on the highest level of fiduciary liability and removes your responsibility and accountability for operational and investment oversight. Advantages of the SBAM PEP include:

• Our partner acts as the Pooled Plan Provider and 3(16) plan administrator so you offload the majority of day-to-day tasks.
• You are provided with access to participant communications and plan support.
• Fiduciary support and responsibility are assumed by professional plan administrators and your liability is greatly reduced.
• You and your employees are given support with investment selections and performance oversight.
• As the adopting employer, you can retain many customized plan features.
• Cost savings include no set-up fees and potential tax credits.

The SBAM PEP is an effective solution in your effort to balance the cost and responsibility of offering a retirement plan with an added advantage to attract and retain talented employees. If you would like to learn more, please visit www.sbam.org/retirement and we will put you in touch with our expert partners and provide you with a proposal.

By Kellie Neirynck; originally published in SBAM’s July/August 2024 issue of FOCUS magazine

Click here for more News & Resources.