How Small Business Owners Can Use a Retirement Plan to Reward Loyal Employees

I often hear small business owners are interested in offering a retirement plan to reward their loyal employees, but are afraid to offer it to someone who comes and leaves within a few months.

Retirement plans like a 401(k) have flexibility in their design to accommodate requests just like this, up to a point.

If you want to make sure employees who show up for a few weeks and quit don’t get access to the plan, you can lengthen eligibility requirements. An employer can require that an employee must work for one calendar year before becoming eligible for the plan.

Once eligible, employees have to wait until the next “entry date” to actually sign up to participate in the plan. Common entry dates might be monthly, quarterly, or semi-annual are all options. For example if you choose semi-annual, after employees met the eligibility requirements they’d be able to enter the plan on the next entry date, either Jan 1^st and July 1^st.

Lastly, employers have the ability to set “vesting schedules” on their matching contributions. In other words, the business owner can make the participants wait to get their matching contributions for some period of time. This can be for a period of up to 6 years.

The main point is, if you’d like to offer a retirement plan to attract and retain loyal employees, there’s ways to do it.

I know there’s a lot of information there, so if you’d like to ask any questions or hear more, please don’t hesitate to reach out to me.