Why Invest in a 401(k) for Your Employees
Investing in a 401(k) is beneficial for your company and your employees not only today but also for the future. Between attracting quality talent, tax savings, and simply looking out for your employees, offering a 401(k) plan is a major step in improving your company.
Be Competitive in the Job Market
Offering a 401(k) for your employees is not only an investment, but these days it is almost a requirement to be competitive in the job market. In fact, 4/5 employees agree that retirement benefits offered by a prospective employer would be a deal breaker, all else equal. Offering a good retirement plan has become a major tool in attracting and retaining quality employees. The last thing we want is to see the best candidate walk out that door because of a lack of retirement benefits.
Offering a strong retirement plan to employees not only helps attract good candidates but it also minimizes turnover, which we all know is a costly part of business. So why wouldn’t we want to invest in a proven way to minimize expensive turnover?
Not only are retirement plans proven to reduce turnover, but they also encourage natural turnover. It is healthy to encourage employees to save and be able to retire when it is right for them. Not to mention, the cost of older employees often out measures that of the young. Although older employees do offer extensive experience and tried and true work habits, it’s also true there is significant cost associated with their generally higher salaries, medical insurance and paid time off. We can and should learn to welcome the natural turnover that comes with having employees financially secure enough to retire. Enter the employer sponsored 401(k).
Get Tax Savings
An employer sponsored 401(k) offers a significant amount of tax savings both on the individual and the business level. Employees have the choice of contributing to a 401(k) on a pre-tax or Roth basis allowing for optimal tax diversity and opportunity for strategic contribution and withdrawal techniques that can give employees a major step up in the game. Not to mention the tens of thousands of dollars (if not more) in savings one can achieve over their lifetime. Without a retirement plan offered through an employer, these tax savings can be significantly limited.
The tax savings for a business offering a 401(k) plan is nothing to scuff at either. Employer’s contributions into a 401(k) plan are deductible on the employer’s tax return. On top of the deductible contributions, businesses are also eligible for a tax credit for opening a new plan (up to $5,000 per year for the first 3 years). The SECURE Act also added an additional $500 tax credit/year for the first 3 years for eligible businesses when they implement automatic enrollment. The proposed SECURE Act 2.0 would increase some of these credits, if enacted. These tax savings may not be the only reason your company should offer a 401(k) but they are often a major decision maker.
Aside from the savings offered through tax deductions and credits to the business, offering a solid retirement savings plan sets employees up to save for tomorrow
For the last 4 decades, retirement planning has shifted to be in the hands of the individual, rather than historically, a burden of the employer. It is in fact, up to the individual to make it a priority to save and prepare themselves for retirement, however, historically we have seen that without the help of employers many cannot and do not achieve financial security during retirement. Individual savings tools like an IRA or Roth IRA are good options for individuals that do not have a plan offered through their employer. However, these plans do have limitations to them, most significantly a lower contribution limit. A 401(k) allows individuals to take advantage of a larger contribution limit and benefit from compounded growth. Unfortunately, many people miss out on this major benefit without the support of their employers.
The United States is in a retirement crisis and individuals are beginning to wake up. Education around personal finance and the importance of retirement savings is increasing at an exponential rate. More and more of your employees are going to be waking up to the fact that they need to save for retirement and an employer sponsored plan is going to be the first place they look. Companies big and small are shifting to offer this important benefit to their employees and those who are not will likely be subject to the state mandated plans being put into effect in most states across the country.
401(k) plans are more important today than ever before. If you think you are ready to support your employees by adding this benefit, please reach out to Staffscapes Inc. We are here to help.
**This is not tax or investment advice. You should consult appropriate professional advice or consultation if you have questions related to taxes or investments. **