Does the thought of retirement invoke a sense of calm or panic? If you’re consistently putting away a percentage of your paycheck every month, hopefully the thought doesn’t put you into a tailspin. Most of us have a general idea of when we’d like to retire, and if your employer offers a retirement plan that matches a percentage of what you contribute, you’re likely doing more than most. But what if your employer doesn’t offer a retirement plan?
According to a study from SCORE, retirement plans are only offered by 28% of businesses with fewer than 10 employees, and 51% of businesses with 10 to 24 employees.
Businesses that do not offer retirement plans cite the following reasons:
71% of businesses that do not offer retirement plans report that plan setup is too expensive
63% do not have the resources to administer such plans
50% say their employees are not interested
22% have not thought about offering retirement plans
Some of these reasons are more valid than others, but if you’re still not offering a 401(k) plan to your employees, it’s time to reconsider. For one, offering a traditional retirement plan like a 401(k) is likely cheaper than you think. You’ll be able to recruit better employees to your business, deduct plans on your taxes, and improve quality of life for all your employees.
Recruit talented employees
Current and future generations of employees want more than just traditional benefits like health, vision, and dental insurance. In fact, nearly 80% of employees would rather receive better benefits than a pay raise. So if you’re skimping on a traditional yet highly valuable benefit like a retirement plan, chances are your job openings are being passed over by talented workers.
In order to compete in today’s highly competitive job market, your small to mid-sized business needs to provide a benefits package employees find appealing. Extravagant benefits like free lunches, an on-site gym, and weekly events are not feasible for a majority of businesses, large or small, and thankfully, a majority of employees would rather participate in a traditional benefits package.
Setting up a 401(k) is a relatively affordable benefit (when compared to health insurance, and student loan assistance, for example) and one that is greatly appreciated. It helps retain employees for two main reasons: for one, it demonstrates you care about their financial wellbeing, and two; most employer-contributions (if you decide to offer an employer contribution) are vested. Meaning employees will not be able to keep all of an employer’s contributions up to a certain time period, which is usually five years.
Reap the tax benefits
Saving for retirement in a 401(k) account is a pre-tax contribution, which means when an employee accesses those funds come retirement time, the money they withdraw is taxed at an income tax rate instead of a capital gains tax. This results in keeping a larger percentage of their own money.
Offering a 401(k) plan can also be a financial benefit to your business, now more than ever, thanks to the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act). Some of the incentives offered through the SECURE Act include:
If you’re offering a 401(k) plan for the first time, your small to mid-sized business can receive up to $5,000 in tax credit for the first three years you offer the benefit
You’re also eligible to collect an additional $500 for up to three years if your plan includes automatic enrollment
Ease retirement nerves for your employees
Workers stress about saving for retirement because they fear they’ll never have enough to retire comfortably. If you help employees save for their future, you help eliminate that fear and assist in making their retirement plans a reality. Chances are your employees will feel more loyal and happy for the company they're working for if they perceive that their employer is helping them reach personal financial goals.
Offering a retirement plan benefits both your business and your employees. You’ll receive notable tax benefits while being able to recruit talented, loyal employees. Much like saving for the future, implement a retirement plan now. Future you will be happy you did.