Choosing a Retirement Plan for Your Ohio-based Business

Choosing a Retirement Plan for Your Ohio-based Business

28 Mar 2022

As you’re planning retirement for your own private wealth, so are your employees. The retirement plan you select for your business has a meaningful impact on your employee retention rate as well as your business’s appeal to potential hires. 

Choose the right plan, and you’ll find worker morale increases, your team works harder, and it’s that much easier to retain talented employees. The great news is that you don’t have to do it alone. 


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Consider What Your Business can Reasonably Contribute 

The financial contributions to employee retirement plans, especially matching contributions to 401(k) plans, are significant. Crunch the numbers with the help of our investment advisors in Canton, Ohio, and you’ll better understand what you can give. The retirement plan type ultimately manages the cost of those contributions. See 401(k) contribution limits per the IRS.

Simplified employee pension plans, referred to with the acronym of SEP, are strictly funded through employer contributions. SEP contributions are transmitted to distinct IRAs for each eligible employee.

SIMPLE IRAs, short for Savings Incentive Match Plan for Employees of Small Employers, are worth your consideration as they combine employee contributions with those of the employer. 

For example, employers use such IRAs to match employee contributions upwards of 100 percent with a cap of three percent of employee compensation. Some employers use SIMPLE IRAs to match two percent of employee compensation.  

It’s also worth noting that 401(k)s are mainly funded through employee contributions. Employers can also make contributions that match employees’ contributions up to a certain amount. 

CASH BALANCE plans are a form of retirement plan that allows business owners and key executives to build substantial retirement assets in a short period of time.  A well designed plan can also have significant tax benefits. This may be a benefit to owners who have invested money for years in the business rather than their own retirement.

The right financial advice is crucial. Meeting with our financial advisors in Canton, OH, will help determine which optimal plan for your unique business. You will also want to consider Ways Inflation Might Affect Your Retirement Planning Efforts.

Retirement Planning Services for Businesses Worried About Employee Turnover

If your business has a high turnover rate, it’s in your interest to factor that into your selection of retirement plans. Prudent vesting and eligibility criteria will help offset the cost of covering employees who do not remain with your organization for an extended time. 

As an example, the SIMPLE IRAs noted above are required to cover employees who earn a minimum of $5,000 across a period of two years and are likely to make a minimum of $5,000 this year.

SEP-IRAs apply to employees who earn a minimum of $650 in wages/salary and are a minimum of 21-years-old. Those who have not been employed in three years of the prior half-decade are not covered through SEP-IRAs. Defined benefit plans and 401(k) plans apply to employees who are a minimum of 21-years-old.  

The SECURE Act states such retirement plans are available for employees who have worked 500+ hours per year across three straight years or those who have put in 1,000+ work hours in the space of an entire year.  

It’s also interesting to note vesting is immediately applicable to all contributions made to 401(k), SIMPLE IRA, and SEP-IRA retirement plans. However, a vesting schedule will likely apply to 401(k) plans where employers make contributions and provide defined benefits.  

When looking for retirement plans that provide comparably high contribution maximums, shift your attention from SIMPLE IRAs toward 401(k) plans and those of the SEP-IRA variety. If getting a late start to retirement planning for your hard-working personnel, consider defined benefit plans that provide high allowable contribution limits.

A Closer Look at 401(k) Plans

There is a common misconception that 401(k)s are superior to other retirement plans.  However, the truth is that 401(k) plans are comparably challenging compared with SIMPLE IRAs and SEP-IRAs. Some 401(k)s tailor service specifically to small businesses, including startups and those with less than 50 employees. 

It’s also worth noting that the ’19 SECURE Act provides additional opportunities for small business owners to offer their staffers retirement plans, empowering these companies to engage in pooled employer plans that help offset planning costs and challenges.

There’s no reason to be intimidated by the prospect of setting up a 401(k) for your business. Our full-cycle investment financial professionals help every step of the way on a fee-only basis. We provide business owners and employees with financial planning and investment strategy and guidance through periods of inflation, stagflation, reflation, domestic market troughs/peaks, global economic events, etc. 

Business financial planning in Ohio goes faster than anticipated at McGervey Wealth Management. Investment plan strategies are well-laid out through a written plan. We arrange assets for the trust to ensure they’re solely used for participants and their beneficiaries, trackable through a recordkeeping system. Our financial advisors help you maintain these essential records. 

We also guide and communicate with employees, including educating your team about the plan details, eligibility for participation, and the nuances of potential employer contributions and matching.

Does It Make Sense to Match Employee Contributions to 401(k) Plans?

Your knee-jerk reaction to this question might be an emphatic “No!” simply because matching employee retirement contributions is costly. Remember, the money you lose through matching employee contributions to 401(k) plans up to a certain dollar amount has the potential to result in an exponentially greater addition to your bottom line in the form of a higher employee retention rate and increased interest from coveted prospects.

Your 401(k) contribution match doesn’t have to be dollar-for-dollar. Nor does your matching program need to be unlimited. It can retain valuable employees and attract new employees by matching employee contributions up to a certain threshold. This matching contribution can also be capped at a percentage of an employee’s salary.  

Profit-sharing is also a strategy worth considering. This approach sets aside a specific amount of pre-tax profits, putting them in employee retirement accounts. The employer then contributes a percentage of each employee’s compensation or a specific dollar amount.  

Your financial life and well-being are at the heart of how we serve you and your employees. Our employee retirement planning team creates strategies that are carefully tailored to your company’s unique position. 

From cash flow and profitability in the near future to long-term projections, you can rest assured that we proactively keep our finger on the pulse of both the domestic and global economies while keeping you informed. 

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More About the Author: Michael McGervey

Michael serves as a resource to executives and business owners, assisting them in making proactive and informed personal financial decisions. He is also a member of McGervey Wealth Management’s Investment Committee and is responsible for investment research as well as the execution of the firm’s portfolio strategies.