Building a Strategic Employee Benefits Plan

March 20, 2023

Privately held business retirement plans serve several purposes. First, they make a business competitive when it comes to hiring employees. If you want a high-quality employee, you need to have a high-quality benefits plan. Strategic employee benefits plans are also tax efficient for the employer. 

See how you can build a plan that benefits your business and blesses your employees.

Employee Benefits Strategies to Meet IRA Standards

A key consideration when designing an employee benefits plan, especially in regard to the 401k, is how it impacts highly compensated employees (HCEs) and non-highly compensated employees. 

The IRS defines a highly compensated employee (HCE) as someone who meets one or both of the following standards:

  • Owned more than 5% of the business at any time during the year or the preceding year, regardless of the amount of compensation received.
  • Received more than $135,000 in compensation in the 2022 tax year and was in the company’s top 20% when ranked by compensation. In the 2023 tax year, the amount will increase to $150,000.

When HCEs make significantly more than other employees, they have a disproportionate advantage to how much they can contribute to their 401k each year, especially when the employer offers a 401k match. 

Not only do you want to pass the annual IRA-mandated nondiscrimination tests to ensure your business doesn’t lose tax benefits or is subject to penalties, but this also allows you to design a plan that intentionally blesses all of your employees. We believe benefit plans should always be in the best interest of your employees, community, and company. If you don’t take care of your entire team, everyone loses. 

Here are some other competitive benefits for small businesses!

Tax Strategies for Small Businesses Employers

If your company has fewer than 100 employees, it’s easy to get creative and save a lot of tax dollars through your benefits plan. 

Qualified Business Income Deductions

For example, small medical companies, legal practices, and tech companies that are very profitable can use a combination of their industry structure (if they are a pass-through entity) and a sophisticated retirement plan design to be eligible for a qualified business income (QBI) deduction. This is a tax deduction that allows eligible self-employed and small-business owners to deduct up to 20% of their qualified business income on their taxes.

Read more about how a QBI deduction works here. 

Plan sponsors can use this tax deduction as additional retirement contributions for their employees and owners as an additional benefit. 

Customized Retirement Plans

Many companies offer an off-the-shelf retirement plan design. Often, these plans will be a QACA, or Qualified Automatic Contribution Arrangement. This is a type of automatic-enrollment retirement plan that automatically enrolls employees in a matching contribution unless they choose to leave the plan. This can work, except the contribution levels are usually much lower. 

With a custom-designed plan, you can keep the automatic enrollment aspect but start employees at a higher contribution level. It’s important to educate your employees about their retirement plan benefits so they can maximize their pre-tax savings. 

Using Your Employee Benefits Plan for Strategic Growth

Choosing the right employee benefits plan and strategy helps your company grow in a way that includes your employee in the rising tide. 

If your business is built around your values and faith, these plans are just one more way to steward your money, your people, and the opportunities around you.

Proper plan design and implementation can also minimize administrative hassle and cost, and even more so as you grow your business. The right support can also handle and mitigate all the regulations and potential liabilities in building these plans. 

If you want to learn more about building a strategic employee benefits plan, we are here to help! 



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