Amid the current labor shortage construction and real estate companies face, employers are finding new ways to attract and retain high quality employees. Many employers are doing this by establishing or refining their corporate retirement plans.
The SECURE Act – one of the most significant pieces of retirement legislation in recent history – significantly increased the small employer pension plan startup tax credit. And now may be the perfect time to evaluate if this plan is right for your company.
There are many types of retirement plans to consider that can help you effectively attract and keep talent. Below, we take a deeper look at the following plans: the 401(k) plan, a profit sharing plan and a cash balance plan.
The 401(k) plan is a flexible retirement plan design suitable for businesses of any size. It allows employees to make salary deferrals on a pre-tax basis of up to $20,500 in 2022 ($27,000 if over the age of 50). Employers can also make matching and profit-sharing contributions to enhance this benefit for employees. When combined, the annual additions of employee deferrals and employer contributions cannot exceed the lesser of: up to $61,000 ($67,500 for age 50 or older) or 100% of compensation.
In addition, organizations can elect a Safe Harbor component for the 401(k) plan – a beneficial option for businesses that have highly compensated employees not able to maximize contributions to a traditional 401(k) plan due to low participation. Unlike the traditional 401(k) match, a Safe Harbor is a year-to-year election that requires the match for each year it is elected and is immediately 100% vested for participants.
Profit Sharing Plans
A profit sharing plan allows employers to make discretionary tax-deductible contributions for their employees. This plan allows for the flexibility of different classifications of employees, which can provide a larger benefit for older and highly compensated team members. A profit sharing plan also allows for a vesting schedule – often seen as a beneficial means of retention during the vesting period.
Cash Balance Plans
A cash balance plan is a type of defined benefit pension plan that combines the high contribution limits of a defined benefit plan with the flexibility and portability of a 401(k) plan. Under a cash balance plan, key business owners and executives can contribute up to $245,000 in 2022. This plan also offers more flexibility than a normal defined benefit plan, since it allows participants to choose to have the lump sum rolled over to an IRA upon termination of employment or at retirement. Using this plan, funds can then be taken out over time, similar to a 401(k) plan, instead of the typical monthly benefit payout in a defined benefit plan.
In addition, a cash balance plan can be used to optimize savings under the current tax law by allowing some owners to reduce their adjusted gross income enough to qualify for the .20% of qualified business income.
Attract and Retain Key Employees in the Construction Industry
The current labor challenges facing the construction and real estate industries are significant. Candidates want more from their companies, and that includes advantageous retirement plan options with employer contributions. The good news is that you don’t have to make a decision alone as to which plan may be right for your company and employees. At Sikich, we provide a consultative approach to analyze and review your current situation and goals to help you determine what method will best fit your needs. Contact us if you have any questions, and we’ll be in touch.