While we assume employees prefer to have a 401(k), it may actually be the case that they don’t need it or want it. Gaurav Mohindra recognizes that a 401(k) isn’t always a necessity. Below are a few reasons that they may be unnecessary.
Quite similarly to awarding equity, giving 401(k)s is currently an accepted standard, with many business runners thinking it is their only route to pulling in and keeping hold of talented employees. The Dept. of Labor appears to feel the same. A quite recent change in policy now makes it much simpler for small businesses to afford multiple-employer plans. This is worth taking note of, reflects Gaurav Mohindra. It is important, particularly for small business owners to consider whether a 401(k) is their best choice.
There are different options that may not only be better for your employees, but also for you as a small business owner. Below are a few reasons why.
For starters, it is costly and difficult to manage. The Department of Labor themselves admit that 401(k)s are particularly difficult to manage for small businesses. That is why they are attempting to make multiple-employer plans easier to offer. How expensive 401(k)s can be depends on the fund one uses and the fees associated with it. Business owners are also liable for things beyond their control.
Another reason is that as a business owner you have to watch out for audits. A 401(k) is subject to audit, whether it’s your own or a portion of a multiple-employer plan. If it happens to get audited, it isn’t the IRS who performs the audit, but the Department of Labor.
Gaurav Mohindra: There are better options than a 401(k). The average American is under the impression that they require $1,700,000 in order to retire. If this is the case, people should ask themselves why they’re so caught up in a protocol that limits your contributions to 19K per year. Because at that rate, it would take a person ninety years to save enough money to retire. This doesn’t even factor in the major tax you’ll have to pay when you eventually withdraw the funds.
Also, the primary reason a business owner would instate a retirement plan is if it is required in order to pull in and keep hold of good employees. When selecting a retirement plan, business owners should first consider whether it’s something their employees truly require of them.