401(k) Plans: A Win-Win for Employers and Employees

Posted on Sep 11, 2019

If you’re an employer and don’t offer a 401(k) plan, you could be missing out on key benefits for you and your business. First, offering a 401(k) helps to attract and retain valued employees. In many parts of the country, record low unemployment rates and a high demand for workers has put added pressure on employers to be competitive in terms of salary and benefits. Even if your company is a small start-up, the minimal costs to set up and administer a 401(k) are likely to be far less than the costs of turnover and continual recruitment.

Employees generally view 401(k) plans as a desirable benefit because it allows them to defer a portion of their paycheck, pre-tax, to the plan. As an employer, you can choose to match a percentage of the employee’s contribution up to a certain point - or not. In either case, the 401(k) gives employees the opportunity to save for retirement and defer taxes on their savings until they withdraw them, ideally when they’re at retirement age.

Second, if you have fewer than 100 employees who received at least $5,000 in compensation from you in the preceding year, you may qualify for a special tax credit of up to $500 a year for the first three years of the plan. You can claim the credit to set up and administer the plan, and educate your employees about the plan. If you do make employer contributions, those are also tax-deductible to the extent allowed by law. In addition, you as an employer can also save for retirement with tax-deferred contributions to the plan (including company matches, up to an annual limit of $56,000 in 2019 or 100% of employee compensation, whichever is less.)

Finally, concerns that Americans are not saving for retirement has prompted lawmakers in 28 states to introduce legislation for state-sponsored retirement programs. These retirement plans are generally geared for employees in small businesses. While the plans don’t require employer contributions, they do require employers to take on the administrative work of setting aside a portion of workers’ salary each month for the retirement fund. Mandates for employers vary from state to state, with some states levying fines against employers for non-compliance.

Rather than your state government possibly forcing a retirement plan onto your staff, why not take control and investigate what’s best for you, your business, and your employees? There are several types of 401(k) plans available to employers, with plan designs to meet your needs. Plan administration need not be a major time commitment or major expense. It’s smart to work with a knowledgeable, qualified professional who can help you evaluate your options, set up a plan that makes the most sense, and even manage all aspects of plan administration.

This material is provided for informational purposes only, and is not intended as authoritative guidance, legal advice, or assurance of compliance with state and federal regulations.