My company plans to start offering a retirement plan with a high degree of matching. The more I look into it, the more I realize there are a ton of options. Traditional 401k, Roth 401k, SEP IRA, SIMPLE IRA... What factors are key in making one plan a better choice than another?
The laws and rules about retirement plan options - and thus the pros and cons - change constantly.
I gather because you're asking this question that you don't employ an HR professional who stays on top of this. So I would suggest retaining a benefits consultant. You want somebody you pay and who doesn't make their money by steering people toward particular securities, because they're more likely to give you unbiased advice.
A 401k generally has the most scalability. The IRA options are designed for individual or very low head count situations. Pensions are wholly unsuited to a labor market where workers change jobs 5+ times during their career. A 401k allows employees to stash away $17k per year pre-tax and as your cash flow situation changes, you can increase the benefit with a matching contribution and a profit-sharing component (over $50k). The 401k is also a fair and broadly applied benefits program that is prohibited by law from discriminating against lower wage employees to the benefit of higher wage employees.
Frank is right to highlight the hidden fees and bad incentives caused by some brokers in the 401k space. But with increased fee disclosure a new breed of investment advisors are changing that. It's possible to get a very cheap 401k plan for even small start ups with access to over 10,000 funds, including index funds and ETFs (even the entire Vanguard lineup).
The best retirement plan you could offer is a sort of Pention, Company Stock, Company Dividends, etc.
Say you have a developer that gets paid 75k per year, it think its rather irresponsible to offer a 401k that encourages him to invest in the stock market (the biggest ponzi scheme known to man), rather than invest in the company he works for.
Him investing in your own firm has a double effect where he can nurture his investment by making sure that he is at his best, builds high moral, and gives your employees a sense of ownership and responsibility. You could come up with a long term profit share / pention plan where employees get dividend paying stock.
I think its a way better way to go than the traditional 401k, where the broker is happy to make his $$$ but doesnt give a rats penis if your clients lose their retirement in a bad economy.
In my company we have an "When i eat, we all eat attitude" We dont have shares or pensions yet, but have very healthy yearly bonuses out of a pool of 15-25% of our yearly net income.
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