In a competitive talent market, offering retirement benefits is critical to attracting and retaining employees. One popular option is the 401(k) plan. But which plan type is best for your business? And what specific 401(k) plan features can boost participation and make your plan more appealing to your employees?
Employee Attraction and Retention
Well-designed 401k plans for small business is a powerful recruiting and retention tool. High-quality job candidates often entertain interest from multiple employers and make decisions based on corporate culture, growth opportunities, and benefits packages. Adding a 401k to your business’s benefits package tells potential employees that you’re committed to their financial future with the company. Small businesses can offer a traditional 401k, a safe harbor 401(k) plan, or a SIMPLE 401(k). All have their benefits and features to consider. For example, a safe harbor 401(k) allows you to automatically enroll eligible employees who fail to make an affirmative salary deferral election themselves. This increases participation rates and may improve a 401(k) ‘s ability to pass nondiscrimination testing. Employees can also benefit from a 401(k) with matching employer contributions, which can help them save more for retirement. These contributions can be tax deductible up to the annual contribution limit for your business. Many providers offer low-cost investment options, allowing participants to keep fees under five percent. Lowering these fees is another way to maximize your 401(k) ‘s benefits.
Tax Savings
Like a DJ who wants to fill the dance floor, the federal government is after more retirement savings from small businesses. To encourage more plans, it recently launched a set of tax credits for the first three years to offset startup costs and provide employer-matching contributions. It also created a new credit to incentivize small businesses to add automatic enrollment to their plan and another for the first three years to offset plan management/administrative expenses. These credits are available for 401(k) plans that meet specific requirements, including a safe harbor or SIMPLE plan with a non-elective contribution or automatic enrollment and no top-heavy testing. The credit equals the lesser of $500 or 250 multiplied by the number of non-highly compensated (NHC) employees eligible to participate in the 401(k) plan. Adding a 401(k) to your small business sends a powerful message to employees, and it can help you attract and retain talent. But, setting up and managing a retirement plan can seem daunting with many different providers and systems. That’s why finding one provider that can handle everything from recordkeeping and compliance testing to day-to-day plan administration and payroll integration is essential.
Increased Profits
A 401(k) plan can be more affordable than many small businesses think. Plan setup, ongoing recordkeeping, compliance testing, and day-to-day plan administration fees can be deductible along with any employee investment fees. Advances in retirement plan providers make offering a cost-effective, user-friendly solution more straightforward. The most flexible type of employer contribution available in a 401(k) plan is profit sharing. This allows a business to allocate contributions to any plan-eligible employee — even those who don’t make salary deferrals themselves. This discretionary contribution can be allocated using dramatically different formulas, allowing a business to meet various goals. In addition, the IRS offers several tax credits to help offset startup costs and the first three years of plan operation.3 These tax benefits are incentives for small businesses looking to promote critical employee recruitment and retention. And by providing a low-cost, effective vehicle for retirement savings, 401(k) plans can help small businesses improve their bottom line. This sought-after benefit can increase productivity and help employers compete for top talent.
Reduced Risk
The top reason cited by small business owners for offering a 401(k) plan is to help employees save for retirement. This, in turn, helps the company attract and retain talent. 401(k) plans are highly customizable to suit an employer’s specific goals, and a financial advisor can help craft the right retirement plan for your business. For example, a safe harbor or SIMPLE 401(k) allows for an employer match while still passing annual IRS nondiscrimination tests (and keeping the business from being “top-heavy”). A standard profit-sharing 401(k) allows employers to make outright contributions to employee accounts or contingent on what employees defer and can be structured with vesting schedules to customize the plan design further.
Employee Engagement
Employee engagement is one of the most important topics on any company’s agenda, and rightfully so. It can help reduce staff turnover, increase productivity, strengthen customer relationships, and boost employee morale. To create an engaged workforce, companies must provide various benefits and perks that make them proud to be part of the team. This can include flexible work hours, opportunities for promotion, and a wellness initiative that promotes a healthy lifestyle. In addition, employees need to feel like their contributions are valued and that the company cares about them as individuals. That means being included in the organization’s mission and values, receiving regular communication through a single channel from management, and having a voice in the company decisions that impact them. The most effective way to improve employee engagement is to listen to feedback and take action. When leaders genuinely listen to their employees and act upon the feedback, they will build trust. This will allow the company to develop a more robust culture and attract more employees in the future. Those who are engaged will also be the best advocates for the company, spreading the word through social media and word of mouth.
