Top Advantages of Offering a State Retirement Plan for Your Employees

The Top Advantages of Offering a State Retirement Plan for Your Employees

Helping employees save for retirement can positively impact their financial health and engagement. With this in mind, more than 30 states have contemplated enacting state-mandated retirement plan legislation, and 13 have passed programs into law. But what are the advantages of offering a state-mandated retirement plan for your employees?

Retain Talent

In a talent shortage, offering a retirement plan can be an effective recruitment and retention tool for your company. Retirement plans allow small businesses to make hefty tax savings while employees benefit from tax-deferred growth on their long-term savings.

Many companies are implementing employee retirement benefits to attract top-tier talent and retain current workers. The reason is apparent – employees are willing to work harder for a company committed to their future financial security.

According to a survey, retirement plans are one of the most important employee benefits when considering a job offer. Moreover, the benefits of a state retirement plan are even more significant for smaller companies that can’t afford to offer more extensive employer-paid benefits such as health insurance and paid time off.

As the need for better retirement planning continues to grow, small and medium-sized companies must adopt retirement savings options and provide their employees with choices. When a business offers its employees a variety of retirement plans, it can positively impact employee engagement, productivity, and morale.

Employee Engagement

Employee engagement is a critical component of the workplace culture, impacting how employees feel about their jobs. It also affects how they perform and whether or not they stay with the company. It’s estimated that unhappy workers cost companies up to $550 billion a year in lost productivity and turnover.

Offering a retirement savings plan allows employers to commit to their employees’ financial welfare and future security. Employees appreciate that their employer cares about them and is doing their part to help them save enough for a comfortable retirement. When communicating about pension savings, the language and approach used are critical.

Employees need clear, straightforward, and accessible information that is jargon-free. They also need to be reminded that they are investing their hard-earned money and that their returns will directly result from how much they contribute. It’s also essential to encourage visualization. Providing them with lifestyle images of how they could spend their retirement helps them prioritize their savings decisions.

Tax-Deductible Savings

Many states have passed legislation to require employers of a specific size to offer a retirement savings plan. This allows workers to reduce their taxable income by putting money into a tax-deferred account. This is great for employees, especially those who want to pay less taxes and avoid higher taxes in the future. 

Fortunately, many states have also passed or are considering legislation allowing employers to offer other retirement options. These include 401(k) plans, profit-sharing plans, Simplified Employee Pensions (SEPs), cash balance plans, and employee stock ownership plans. These alternatives can help keep employees happy and engaged while providing the benefits of a traditional retirement plan.

They’ll let you tailor the plan to your business and employees’ needs. In a survey, the biggest reason why businesses did not offer retirement plans was that they thought it would be expensive to set up and manage. These are valid concerns, but they can be overcome by using a provider to take the administration burden off your shoulders.

Investing Choices

Many retirement accounts offer a range of investment choices with different levels of risk. These choices can help employees build savings that can support the lifestyle they want in retirement. Employers may also add to a participant’s savings by matching contributions to a certain amount. This is a great way to encourage employee participation and increase savings potential.

Various investing options are available for state and government workers through employer-sponsored plans. Some options are more hands-off and require no involvement from the participant, while others offer more control and flexibility.

For example, Plan 2 is a pension plan that guarantees a monthly payment in retirement regardless of how investments perform. Most government workers are enrolled in this plan for its simplicity and low risk.

Other plans, such as 401(k) or 403(b), allow participants to choose two separate accounts: a pension account funded by employer contributions and an investment account they support with their contributions. Investing in both accounts will enable them to choose a more diverse portfolio of funds and reduce the risk of losing a large portion of their retirement savings.

Financial Independence

With pensions gone mainly in the private sector, Social Security a source of uncertainty, and retirement savings lagging for many employees at small businesses, state programs like Colorado’s Secure Savings Program could be a lifeline. The program requires that companies register with the program if they have 25 or more employees in the state.

According to a 2023 survey, business owners who have plans mention helping workers save for retirement and attracting and retaining talent as the primary reasons for offering plans. Those who need them cite the financial cost (37 percent) and organizational resources (22 percent) required to start a plan as barriers to providing one.

For those who may be interested in a state-run retirement program, consider that these programs typically have more modest startup costs than 401(k) plans. These include administrative fees, compliance consultations, and other expenses.

In addition, some state-run plans allow employers to offer supplemental retirement accounts like Simplified Employee Pension (SEP) accounts. These are similar to traditional IRAs except that only the employer can make contributions, and employees cannot add their elective funds.

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