The United States Small Business Administration establishes small business size standards on an industry-by-industry basis, but generally specifies a small business as having fewer than five hundred employees for manufacturing businesses and less than $7.5 million in annual receipts for most non-manufacturing businesses.
A Financial Advisor, Insurance Consultant, Employee Benefits/Payroll Provider, or CPA can create a niche market for their firm by becoming an expert of 401(k) Retirement Plans for Small Businesses. While requirements for certifications may vary state-by-state, there are several ways to educate yourself as to the specific needs of Small Business owners and stay informed to help your current clients and gain new ones.
The number of responsibilities a Small Business Owner faces compounds exponentially as their business begins to grow through increased sales and services, addition of new clients, hiring new employees, and additional responsibilities too numerous to list. However, retirement plan administration for a Small Business Owner and their employees does not have to be a burden through outsourcing the fiduciary responsibility to a third-party such as TAG Resources.
Here are 5 key areas to use to your advantage in mastering the Small Business Retirement Plan market:
1– Tax Advantages for Start-Up 401(k)s:
The Journal of Accountancy reports that Retirement Plans offer significant tax advantages to Small Business Owners and give them and their employees incentive to save for the future. An earlier post from TAG Resources goes into more detail about these tax advantages for start-up plans. The IRS website also has information on Retirement Plans Startup Costs Tax Credit. This key tax advantage can minimize the initial outsource costs, as well.
2– Know the Best Retirement Plan Options for Small Businesses:
Studies from Manta, an online resource dedicated to helping small businesses, and Guardian Insurance Company, show that all too many Small Business Owners don’t have a retirement plan — roughly 34%; 35% actually started their business to fund their retirements; and a similar number are depending on the money from selling the business to fund their retirement. The Small Business 401(k) Expert can help business owners learn about the types of retirement plans available for their business. A recent article from Inc. explains some of the options from Solo(k) to SEP-IRA, to the 401(k) Aggregated Solution from TAG Resources.
3– Destroying Myths About Company Size & 401(k)s:
There are so many misperceptions about plans that business owners tend to be frightened away from offering a retirement. TAGline Print, the e-newsletter from TAG Resources, tackles 401(k) Myths in another article, while 401k Specialist Magazine expands on the subject in an article from July 2017.
By outsourcing the administration of the retirement plan, a Small Business Owner can free up their time or their employees from becoming retirement plan experts. A fully outsourced 3(16) Administrator becomes responsible for Plan operation oversight, Plan document administration, notices, statements, disclosures, distributions, loan repayments, contributions, government filings, compliance testing, etc., etc., etc. All of these items are things the overworked Small Business Owner does not have to perform when a 3(16) Administrator becomes their retirement department support team. Regardless of the service provider’s responsibilities as plan fiduciary, the employer still remains a fiduciary with all defined legal obligations and responsibilities.
4– Serving and Educating An Underserved Market:
The Small Business marketplace continues to grow based on US Census numbers. The Pew Charitable Trusts report 22% do not have administrative resources to maintain and run a retirement plan. In not offering or contributing to a Retirement Plan, it could be that Small Business Owners are uncertain of the intricacies of retirement plan options and investments.
5– Mitigating Fiduciary Risk and Liability:
The last thing a Small Business Owner wants to deal with is litigation and the implications of fines for operating a poorly run plan. There are a number of resources to learn about minimizing fiduciary risk, for example 401k Specialist and TAG Resources, through the use of 3(16)s and ERISA 3(38)s. Most Plan Sponsors do not fully realize the role of a Plan Administrator, however, outsourcing fiduciary liability transfers most of the risk and liability to the third-party vendor who acts as the named administrator on the 90-page legal document known as Form 5500 and relieves the Small Business Owner from performing work associated with document review, notices, mailings, loans, distributions, QDROs, eligibility determinations, and other plan tasks.
6– Keeping Up With New Retirement Options:
In a recent article, Mr. Tisue Goes To Washington, we expanded on the retirement plight of the Gig Economy. There are some state-run programs for private workers and federal government legislation that could be jump-start the Small Business Owner by encouraging them to start their own 401(k) or similar retirement plan options.