4 retirement options to recruit and retain top farm employees
1. Simplified Employee Pension (SEP) plan
Does your operation rely on a small but critical number of employees that work on a permanent, full-time basis? If so, a Simplified Employee Pension (SEP) plan rewards employees with contributions to retirement accounts that are tax-deductible from your business income. A SEP provides flexibility for you as the business owner to adjust contributions annually, allowing you to react to changes in your farm or agribusiness income. All contributions to a SEP plan are made by the employer to benefit their employees. This makes the SEP a good option for family-run operations because family-member employees can benefit from the increased retirement savings, while your business benefits from tax savings.
2. SIMPLE IRA plan
When you want to encourage your employees to save for their own retirement, a SIMPLE (Savings Incentive Match Plan for Employees) IRA may also be a good solution. This option is for small to medium-size businesses (those with 100 or fewer employees). It’s like a SEP because it requires the business owner to make a tax-deductible contribution to the employee’s IRA, but it also allows employees to personally contribute up to $13,500 each year of their own earnings. A SIMPLE IRA, therefore, provides tax-advantaged benefits for both the employer and for employees.
3. 401(k) defined contribution plans
For larger farms or ag employers, a 401(k) defined contribution plan is a retirement savings solution many employees may expect. In today’s tight labor market, large employers not offering a defined contribution plan may struggle to attract and retain long-term employees. This savings option permits tax-deductible employee contributions up to $19,500 and it also allows (but does not require) the business owner to make additional contributions to their employees’ accounts within the plan. Due to the frequent contributions from employees (typically, from every payroll) and to help ensure all tax laws are followed, Mr. Schein encourages employers to work with a service provider to administer such plans.
4. Defined benefit plans
Do you own a large farm or agribusiness and wish to save more than what’s allowed by other retirement savings options? A defined benefit plan can be offered in addition to (or in place of) a 401(k) plan. These plans are the most complex, so you will need to hire an experienced service provider to help with all plan requirements.
When financial planning for farmers, consider these retirement savings options for your farm or agribusiness. While the size of your workforce is a major factor in determining which plan is best, Mr. Schein recommends talking to a financial professional to learn more about your options.
“If you are a farmer or own another type of agribusiness and are considering adopting a retirement plan, there are many options. More than one type of plan might be a good fit for you,” Schein said. “Regardless of which option you choose, it is best to get started now. Retirement readiness is critical for you, your family and your employees.”