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Benefits of a 401k plan for Employers

August 28, 2022

While 401(k) plans offer benefits to employees, they can also benefit the employer sponsoring the plan. There is typically an up-front setup cost and additional maintenance costs for employee 401(k) plans. So, what benefits make the plan worth the cost?

What exactly is a 401(k)?

A 401(k) is a type of retirement savings account funded with pre-tax or post-tax dollars that gives the employee control over their investing and saving.

Tax Benefits

The Internal Revenue Service incentivizes employers to provide 401(k) plans by offering tax advantages.

  1. Any contributions made by the employer up to the lesser of 100% of the participant’s compensation or $61,000 (in 2022) can be deducted from the company’s federal tax return.
  2. Any investment earnings, pre-tax elective deferrals, and profit-sharing contributions are not taxed and are tax-deferred to the employee until distribution.
  3. Tax credits are available for up to $5,000 through the SECURE Act for businesses that are implementing a 401(k) plan for the first time to make it more affordable.

Employee Retention

Providing 401(k) plans as a benefit to your employees makes them feel valued, improving morale and job satisfaction. Employees that feel satisfied at their workplace are more likely to stay longer and be more productive at your company. Increased employee retention lowers recruiting and hiring costs to replace that employee, making offering a 401(k) plan a small price to pay in comparison.

In addition, potential employer matching contributions create an even higher value of the employee’s total compensation, making them more inclined to stay.

Becoming A More Sought-After Employer

You are more likely to succeed in hiring top talent by adding a 401(k) plan to your list of benefits and compensation. Offering a 401(k) plan and employer match can distinguish your business to a prospective hire. Conversely, employers who do not offer retirement planning for employees are looked down upon by potential hires. Build out your 401(k) plan to help with hiring in the current very tight labor market.

State Mandates

Fourteen states across the United States are now requiring employers of a certain size to offer retirement plans to their employees. This is to help combat the lack of retirement savings across average working households in the United States. Make sure that you are offering a retirement plan to your employees if you are required to do so to maintain good standing with the state.

Retirement savings options greatly benefit employees and add tremendous value to your business as an employer. A knowledgeable and experienced retirement plan advisor (RPS) can be a game changer when it comes to designing, implementing, and managing a retirement savings plan for your employees.

Sources:

https://www.paychex.com/articles/employee-benefits/employer-advantages-of-401k-plans

https://www.businessnewsdaily.com/15886-401k-benefits-small-businesses.html

https://www.investopedia.com/ask/answers/10/why-employer-matches-401k.asp

https://www.irs.gov/pub/irs-pdf/p560.pdf

https://www.adp.com/resources/articles-and-insights/articles/s/state-mandated-retirement-plans.aspx