A 401(k) for everyone

One of the biggest concerns Americans
have today deals with future finances
and retirement. People are concerned with whether they will have enough money
to live on when they retire. This concern is
especially troublesome for employees of
companies that do not offer any type of
401(k) option.

Most employees of small businesses are
not offered a 401(k) option because larger
financial firms are not marketing to small
firms. Until recently, if small business owners wanted to offer employees a 401(k)
option, they had to invest in plans that were
very costly to themselves and their employees, says Ron Hongosh, a business banking
team leader for FirstMerit Bank.

However, says Hongosh, there are a few
institutions offering new products that give
small businesses the same 401(k) services
as larger companies, but at a price they can

Smart Business spoke with Cox about the
value of 401(k) plans for small businesses
and how offering such plans can help attract
and retain employees.

How valuable are 401(k) plans today?

401(k) plans are more valuable today than
ever. They are the most beneficial retirement
plans on the market. Contributions are made
on a tax deferred basis and investment earnings are deferred as well. In many instances,
employers match at least a portion of the
contributions you make. In the current economic environment, it is crucial to plan carefully and save to secure your future. Now,
more than ever, is the perfect time to begin
saving for your retirement.

How can small business owners use 401(k)
plans to attract potential employees and
retain current employees?

Small businesses typically do not offer
401(k) plans because they are too costly.
With 401(k) programs structured specifically
for small businesses, owners can afford to
offer a plan to attract a new group of employees and retain employees. These same
employees might otherwise move to a larger
competitor who is able to offer retirement
options. If retirement is truly the No. 1 concern for Americans, then offering such programs will make business owners much
more competitive in their community.

For a small business, such as a family-owned carpet company, there is often no
retirement plan in place. This means that employees must save on their own and do not
have tax-deferred options. If a small business
is able to offer a tax-deferred savings option,
it should appear much more attractive as an
employer, therefore attracting new employees and retaining those employees it values.

What 401(k) options are now available to
small businesses?

Now, there is a program designed for small
businesses that is very similar to other 401(k)
plans on the market. It is a 401(k) program
with the same contribution regulations and
opportunity for employer matching contributions as are available in larger firms. But its
design makes it more understandable to participants and owners and it is structured to
be affordable. Each employee directs his or
her own investments within a select group of
funds. By offering such a plan to employees,
business owners can save for their own
retirement as well. The employer is often as
excited as the employees because they too are faced with the challenge of saving and
planning for retirement.

When should people start investing and how
much should be invested?

People should start investing immediately.
We are all living longer and plan to retire
some day. Thus, starting early is critical. You
can start small and defer only a small percentage of your income if saving is an issue.
Contributions can always be increased as
your earnings increase. Unfortunately, no
one can guarantee that current government
supported retirement plans, such as Social
Security, will remain in effect. You can secure
your own future by investing in a 401(k) to
ensure you are able to maintain the lifestyle
you enjoy during your retirement years.

What would you say to people who say they
cannot invest in a 401(k) because they need
the money for the increased cost of living?

This is a problem because a lot of people
think that way right now. But the truth is, you
really can’t afford not to save. It’s important
to pay yourself first. That is what you are
doing when you invest in a 401(k). In today’s
market, many investment opportunities are
on sale. Investing now means you are buying
low and investing for the future, which will
likely provide a much better payout than if
you wait. You are using tax-deferred money
to create a retirement nest egg.

What should individuals consider when planning for retirement?

Start by asking yourself when you plan to
retire and what lifestyle you want to live in
retirement. Then, evaluate your life plan and
determine expenses you will likely have in
the future, such as college tuition, housing
and medical care. It is important to adjust
your investment strategy as you age or market conditions change. Plans change as life
changes, so it is important to update and
adjust your financial plan often. However, as
in just about everything, having a plan is the
most important thing you can do right now to
secure the retirement of your dreams.

RON HONGOSH is a business banking team leader with FirstMerit Bank. Reach him at [email protected].