Benefits of Offering 401(k)
3 Benefits of Offer 401(k)s to Employees
· Applicants find retirement benefits valuable when searching for work
· Tax benefits can help business owners save money
· 401(k)s can help meet state-mandated retirement plan standards
401(k) retirement plans offer obvious benefits to employees—but they can benefit business owners as well. Some of these benefits aren’t quite so obvious. Employer benefits are an important factor when considering which retirement plan to offer employees. Below, we’ll discuss three of the most important benefits business owners should consider when deciding whether to offer their employees a 401(k) plan.
Meets employee benefit expectations
Like health insurance and flexible hours, retirement plans have become an expected benefit of employment. Offering popular plans, such as traditional and Roth 401(k) accounts, can help you provide value to both prospective and current employees. This can improve your ability to recruit talented employees. Offering added benefits, like an employer matching plan that can match contributions employees make to their accounts, can help even more.
Satisfying your current pool of talented employees can also benefit your business. It can potentially reduce your turnover rate. Studies show that replacing employees can actually come at a cost—sometimes as high as 46% of an employee’s salary. This means that, by reducing turnover and retaining them on staff, you could potentially save money.
Here is a resource about 401(k) mistakes you and your employees don’t want to make:
Offers tax benefits for small businesses
When the SECURE act became law, it increased benefits for businesses that offer retirement plans. Specifically, it increased tax benefits for small businesses (1-100 employees) that offer 401(k) plans to their employees. For instance, before the new law, small businesses could receive a tax benefit of no more than $500 to cover qualified startup costs related to offering a 401(k). The SECURE act increased these benefits to be:
· The greater of either (1) $500 OR (2) the lesser of either (a) $250 multiplied by the number of non-Highly Compensated Employees eligible for the plan OR (b) $5,000.
The above tax credit is available for up to three years after enrolling the company into a 401(k) offer.
The law also adds an extra tax credit for offering an automatic enrollment feature for your employees. This credit is worth up to $500 per year for the first 3 years you offer the plan.
There’s an additional benefit for business owners with employees who contribute to a 401(k) of their own. The high pre-tax contribution limits could potentially bring you into a lower tax bracket that lowers your tax rates and income taxes. In 2022, that limit is up to $20,500? tax-deferred for employers under age 50 and up to $27,000? (including catch-up contributions) for employers age 50 or over.
Meets state-mandated retirement standards
Some states, such as Illinois, Oregon, and California have introduced laws to ensure as many workers as possible can save for retirement. These laws typically mandate business owners to offer retirement savings plans for their employees. If you live in one of these states, offering a 401(k) likely meets the standards your state mandates. Mandates can differ by state, so it’s recommended to research your local laws to understand what standards your business must meet.
Attention to business owners in California: The deadline to register for CalSavers, the new retirement plan mandate, is June 30, 2022. That deadline is approaching quickly—learn everything you know to know about that here: Preparing for the CalSavers Deadline