When President Barack Obama used his State of the Union address last month to unveil the "MyRA" — he was introducing a new workplace retirement savings plan for the country.
He also was taking aim at what benefits experts long have argued is a major flaw in the nation's retirement system: Only about half of Americans have access to a 401k tax-deferred payroll deduction retirement savings plan at work.
MyRA is a noble idea that makes good financial sense for everyone.
But if you're a small employer who doesn't currently offer a 401k plan to your employees, don't get a false sense that this plan has solved one of your biggest problems. The idea, which will be implemented by presidential order later this year, is just one way people can start saving for their retirement.
There are, however, many ways employers can offer their employees a retirement plan. It may be the biggest benefit they want — a benefit many employees will leave you to get.
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Employers who don't offer a 401k plan typically tend to be small companies that don't think they can afford to invest their time or money in this complex employee benefit. But experts said there are several ways to help workers save for retirement without unduly burdening the employer.
David Waddington, a CPA and partner at Friedman LLP and managing partner of Friedman's Benefits 21 LLC in Toms River, is a pension consultant and administrator who has been helping small companies for years.
His clients include successful small-business owners who combine profit-sharing and 401k plans so both the owners and the workers can save for retirement.
Waddington feels the profit-sharing component is one many small employers overlook — or simply don't know about.
Waddington gave the example of a medical practice with two doctors who each earn $1 million a year and office staffers who earn on average about $40,000 a year. In the profit-sharing plan, each doctor can put away, tax-deferred, up to 20 percent of the first $260,000 of their earnings. The rules also require the medical practice make profit-sharing contributions for each of the office staffers, equal to 5 percent of their salary.
Waddington said profit sharing works well for employers "who have the disposable income to fund a very large retirement account for themselves."
Too complicated? Want to set up a traditional 401k plan but worry that an overall lack of participation will hurt everyone?
Waddington has answers for that scenario, as well.
If too few lower-paid workers participate, the amount of money higher-paid employees can contribute is reduced.
Waddington, however, pointed out that employers can avoid this problem by making a safe harbor match of 4 percent of the employee contributions. The highly compensated employees can then make the maximum contribution to the 401k, regardless of how many lower-paid workers participate in the plan.
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Employers know they have the ability to help their employees save for retirement.
The good news: Most want to.
John Bucsek, managing director at MetLife Solutions Group, said employers are searching for the right vehicle after a decades-long process in which 401K plans have replaced pension plans in the lead role for retirement savings.
"I think most employers are good people, and they know their success has been based upon the hard work of others," he said.
In discussions with employers, Bucsek will ask them who are the important people within the business, and how that business can keep them on staff.
"This is all part of having a vibrant organization where the employees realize, 'The employer cares about us here, and they care about us after we leave here,"' he said
Bucsek said he can show employers that it is easier and less expensive than they think to provide a retirement plan for their workers. And if the employer can't afford to contribute to the 401K plan — or handle the administrative costs that come with it — there are other solutions.
For example, the employer could put in a plan that enables the workers to contribute to an IRA account through payroll deductions. The contribution limit to an IRA is $5,500 for 2014 and $6,500 for those over age 50. That's far less than the 401k, but the employee contributions will be tax deductible if the company doesn't offer a 401k plan.
Of course, Bucsek said 401k plans are the best choice. He pointed out that if an employer does offer a 401k plan, it will tend to be most appreciated by the key employees — precisely the people the company is trying to retain.
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Employee retention is great.
But you can't retain an employee if you can't hire them in the first place.
Industry experts say the quality of your retirement plan plays a key part in bringing on quality people.
Steven Greenberg, president of Altigro Pension Service in Fairfield, is in the process of developing a 401k program with lower fees that he will market to small employers, with up to 20 employees.
Why? Greenberg said employers without a 401k are finding it more difficult to compete for quality hires.
"Every employer I talk to says when people come in for a job interview, one of the first things they ask is: Do you have a 401k plan?" Greenberg said. "For some people, it is very important and may be the determining factor (in deciding which job to take)."
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MyRA vs. 401k
MyRA is a modest proposal that won't by itself close the nation's yawning retirement savings gap. Workers will only be allowed to put a maximum of $15,000 in their MyRA to be invested in government securities and eventually rolled over into a private-sector IRA account.
Standard 401k plans will allow contributions up to $17,500 this year. And for employees over age 50, there is an additional $5,500 "catch up" contribution, for a total of $23,000.
Because of that, the MyRA is not meant to compete with a 401K. The hope, however, is that it will get more Americans into the habit of saving money.
"I think the goal is to just get people started," said Joe Ready, the director of Wells Fargo Institutional Retirement and Trust. "What we do know is that people who are on the path of systematic payroll deductions typically save three times more than people who aren't."