Imagine this: A cold sweat wakes Sarah, a production supervisor at a small, but growing, manufacturing company. A recent article about retirement savings — claiming that America has a retirement crisis — sparks a wave of worry. She loves her job and feels invested in the company’s future. Panic sets in, though, as she realizes the lack of a company-sponsored retirement plan might jeopardize her dream of a comfortable, travel-filled retirement. Does she stay in a job she enjoys and shoulder the burden of saving for retirement on her own, or find a job that offers a retirement benefit?

Millions of Americans share the same anxiety and face the same decision as Sarah. An estimated 56 million private-sector workers lack access to employer-sponsored retirement plans, per The Pew Charitable Trusts. That’s a portion of the workforce larger than the combined populations of all major metropolitan areas in the United States (think New York City, Los Angeles, Chicago), all grappling with insecurity about their retirement savings.

The lack of access to employer-sponsored retirement plans presents a double challenge for small businesses. They struggle to attract top talent, especially experienced workers who value these benefits. Replacing a skilled employee like Sarah can be incredibly expensive. Industry studies show that replacing a mid-level employee can cost anywhere from 1.5 to 2 times their annual salary due to recruitment fees, lost productivity and training time. This translates to a significant financial burden for the company, especially if Sarah is just one of many valuable employees lured away by competitors offering retirement options.

However, the issue goes beyond just replacing employees. Sarah’s experience is crucial for smooth operations. Her knowledge of production processes and ability to manage the team ensures consistent quality and efficiency. Losing her expertise can lead to production delays, potential quality issues and decreased overall productivity.

How IRAs Empower Employees and Strengthen Businesses

Today’s retirement savings landscape demands innovative solutions that cater to the evolving needs of both employers and employees. Enter SIMPLE (Savings Incentive Match Plan for Employees) and SEP (Simplified Employee Pension) IRAs. These plans offer a compelling option, especially when self-directed.

With a self-directed IRA, account owners can invest in a wider range of assets beyond stocks and bonds, including real estate, precious metals and more. SIMPLE and SEP IRAs also offer tax advantages, allowing employers to deduct a portion of their contributions as business expenses. (Just remember, consulting with a tax advisor is crucial to ensure these benefits are maximized and all IRS regulations are followed.)

By understanding the unique advantages of self-directed SIMPLE and SEP IRAs, small businesses can enhance their retirement offerings and empower employees to take greater control of their financial future.

SIMPLE IRAs: Offering Flexibility and Matching
SIMPLE IRAs provide a strong option for businesses of all sizes. They allow contributions from both employers and employees.

  • Employer Benefits: Employers can choose to match a percentage of employee contributions (up to 3 percent) or make a flat 2 percent contribution for all eligible employees. This flexibility allows businesses to tailor their contributions based on budget and employee demographics. Plus, it’s a great way to attract and retain talent while helping employees save.
  • Employee Benefits: Employees gain access to a retirement savings vehicle with employer contributions and the ability to contribute up to $16,000 in 2024 (with a $3,500 catch-up contribution for those aged 50 and over). This can significantly boost their long-term retirement savings.

    It’s important to note that SIMPLE IRAs have some administrative requirements, especially for businesses with more than 100 employees. Consulting with a financial professional can help ensure a smooth setup and ongoing administration of the plan.

SEP IRAs: Offering Simplicity and Control
SEP IRAs offer another attractive option for small businesses, especially those seeking a straightforward and adaptable retirement plan.

  • Employer Benefits:
    • Flexibility and Control: Unlike SIMPLE IRAs, SEP IRAs allow employers to contribute to employee IRAs without matching requirements. This provides flexibility and control over contributions, allowing employers to tailor them to individual needs or budget constraints.
    • Generous Contribution Limits: SEP IRAs boast higher contribution limits than SIMPLE IRAs. In 2024, employers can contribute up to $69,000 or 25 percent of an employee’s compensation, whichever is less. This allows for significant contributions for themselves and their employees.

  • Employee Benefits:
    • Simplified Administration: SEP IRAs are administratively easier to manage. Employers simply establish individual IRAs for eligible employees and contribute as desired.
    • Potential for Higher Savings: The generous contribution limits allow employees to accumulate a larger nest egg for retirement.

More About Self-Directed IRAs: Expanding Investment Horizons

As mentioned earlier, both SIMPLE and SEP IRAs can be self-directed, which gives account owners the flexibility to explore a broader range of investment possibilities, including private investments, real estate and other alternatives. This allows for potentially higher returns and greater diversification within retirement portfolios.

It’s important to understand the role of a custodian in self-directed IRAs. The Internal Revenue Code requires that a qualified custodian must maintain custody of the assets in an IRA for the account owner. Unlike registered financial advisors and broker-dealers, the custodian of a self-directed IRA does not offer or sell investments or provide any investment guidance or advice. Rather, the custodian executes investment decisions solely at the account owner’s discretion.

However, this control comes with significant responsibility. The IRA owner shoulders the responsibility of ensuring that selected investments are not only suitable but also secure and legitimate. Given the prevalence of fraudulent schemes in some alternative investments, thorough research is imperative. While custodians cannot prevent fraud associated with the chosen investments themselves, they can help streamline the administrative processes involved with self-directed IRAs.

Here’s where the personal trust department at a local bank, such as Bank of Utah, can be a valuable partner for small businesses:

Account Setup and Administration: Trust departments can streamline the process of establishing self-directed IRAs for businesses. They’ll ensure the accounts comply with IRS regulations and handle ongoing administrative tasks such as recordkeeping and reporting. This frees up business owners’ time and resources.

Safeguarding Assets: Serving as custodians, trust departments safeguard IRA assets with utmost security, offering IRA accountholders peace of mind regarding the protection of their retirement savings. Again, it’s crucial to grasp the distinction between the IRA owner and the custodian. The owner makes all investment decisions; the custodian holds the assets securely and executes transactions based on the owner’s directives.

By partnering with a qualified personal trust department, small businesses can leverage their expertise and resources to navigate the complexities of self-directed SIMPLE and SEP IRAs while focusing on what matters most — their success and the financial security of their employees.

Final Thoughts

By offering self-directed SIMPLE or SEP IRAs, small businesses take a powerful step toward a brighter future — not just for their employees but also for the entire company. A secure and empowered workforce translates to greater stability, higher productivity and a stronger competitive edge.

Partnering with a trusted financial professional can help you understand the complexities of establishing a retirement plan and ensure it aligns with your company’s unique goals. These professionals can provide valuable guidance on plan selection and assist with ongoing administration tasks. More importantly, they can help you educate your employees about the benefits of self-directed IRAs and the vast investment opportunities available to them. Just reach out!

By investing in your employees’ financial security, you’re investing in the long-term success of your business and fostering a collaborative environment built on shared goals and mutual trust. This commitment to building a brighter future, together, will benefit everyone involved.

Dillon SchmutzDillion Schmutz is a vice president, trust manager for Bank of Utah. A graduate of Dixie State University (now Utah Tech University), he manages the bank’s Personal Trust department, as well as the operations departments for both Personal Trust and Corporate Trust. Schmutz also oversees the corporate foreign exchange transactions for Bank of Utah.