Financial Education
The 401(k) plan is a favorite retirement savings vehicle for Americans. It is estimated that 79% of working Americans work for a company that offers a 401(k) or similar plan. But, while more than 90% of very large companies offer a plan, just 14% of America’s small business owners offer a 401(k) plan and 63% do not offer any form of retirement benefits. Owners of small businesses may incorrectly assume that 401(k) plans just won’t work for them. But, that may not always be the case.
#1 – 401(k) Plans Make it Easier to Compete for and Keep Talent
Seventy-seven percent of employers believe that offering a 401(k) or similar plan is important for attracting and retaining employees. However, some may be underestimating their importance — 81% of workers agree that retirement benefits offered by a prospective employer will be a major factor in their final decision-making when job hunting.
#2 – A 401(k) Can Help Owners Save for Their Own Retirement
Business owners sometimes hope to fund their own retirement through business profits or the future sale of their business. They may sacrifice personal retirement savings in favor of plowing money back into the business. When the company provides a 401(k) plan for employees, owners may be more likely to contribute on their own behalf, too. The savings in the plan can help protect the business owner’s ability to retire, even if the company itself does not survive.
#3 – 401(k) Plans Save the Company on Taxes
Small businesses, those with fewer than 100 employees, may be able to claim a tax credit to offset the cost of setting up and administering a 401(k) plan. The recently passed SECURE Act of 2020 increases tax credits for small employers who start new retirement plans from $500 per year to as much as $5,000 per year for three years.
Small employers who add an automatic enrollment feature to their plan may be eligible for an additional $500 tax credit per year for three years. If your company makes matching contributions to the plan, you can claim a deduction, up to IRS limits, for them. You may also enjoy a reduction in payroll taxes if employees are taking advantage of the plan — which is a great reason to educate them about its benefits.
#4 – Plans are Easy to Set Up and Operate…With the Right Help
401(k) plans are available by virtue of an extremely complex U.S. tax system. It makes sense to feel a little intimidated, especially when you have a business to run. Today, there is a lot of help available to make it possible for even the smallest business to confidently establish and operate a 401(k) plan. The administration can be fully automated, and you can select a financial professional who specializes in these plans to help make sure it benefits employees and the company, within the bounds of all applicable laws.
#5 – 401(k) Plans Help Employees Retire On Time
Their workplace 401(k) plan may provide an opportunity for employees to connect with a financial professional; for many, this is their only such contact. Along with the plan, contact with a financial professional may help employees gain confidence in their ability to retire. And that is important for at least two reasons.
1) Employees who know they will have enough money to retire are more likely to leave the workforce on time. Thus, they make room for the next generation of employees rather than remaining on the job solely for the paycheck.
2) Employees who are worried about finances are often less productive, less healthy, and more expensive for your other benefits.
Did You Know?
We have retirement plans available for businesses of every size, big or small. Our retirement plan specialists would be happy to speak with you about your retirement goals and how we can help you achieve them.
Our Retirement Plans for Businesses
- 401(k) – For businesses with 25 or more employees
- 403(b) – For non-profits with 25 or more employees
- Simple IRA – For businesses with 25 or less employees
- Simplified Employee Plan (SEP) – For a business with no employees