A Win-Win Situation: Why SMB Clients Should Offer 401(k) Plans

Quick look: For small and mid-sized business (SMB) clients, offering retirement savings options can make a powerful impact, and brokers are in a prime position to help them access cost-effective 401(k) solutions. To celebrate National 401(k) Day, consider how partnering with a professional employer organization (PEO) enables your clients to offer competitive benefits, attract and retain top talent, strengthen company culture, and potentially unlock tax advantages.

Over 90% of employers offer a 401(k) plan, but among small businesses, that number drops to just 34%. Though retirement planning has often been a standard benefit for most large corporations, SMBs are now rethinking its value.

Brokers can help bridge this gap by connecting clients to a professional employer organization (PEO). Through a PEO, SMBs can cost-effectively offer competitive employee benefits, enhancing recruitment, employee retention, and company culture.

National 401(k) Day, observed annually on the Friday following Labor Day, highlights the importance of retirement readiness and symbolizes the transition from working life to retiring. In recognition of this day, we’ll explore how 401(k)s help small businesses compete, key broker considerations, and why encouraging clients to access benefits through a PEO is a smart solution.

3 ways clients benefit from offering 401(k) plans

SMBs that offer 401(k) plans experience significant benefits as they build and grow their companies: improved recruiting and retention, elevated productivity and engagement, and potentially reduced tax liability.

1. Competitive recruiting and enhanced retention

Many job candidates, especially younger employees which currently make up a significant portion of the workforce, prioritize saving for their future. For example, the 25^th annual Transamerica Retirement Survey of Workers found that on average, Gen Z began saving for retirement at age 20, earlier than previous generations.

Investing in staff can also foster company loyalty. A 401(k) plan is often a small price to pay to retain a quality employee and maintain a strong team, especially considering recruiting and onboarding a replacement costs an average of $4,700 per hire. Additionally, turnover can lead to decreased productivity for the duration of the recruiting period and a possible decline in workplace morale.

2. Lower tax liability and higher tax credits

Another benefit of SMBs offering a 401(k) plan is reduced tax liability. Small business owners may not realize they could qualify for a lower tax bracket by contributing a significant amount of their own salary to their 401(k). As of 2025, the maximum deferral amount for employers ages 49 and under was $23,000 and up to $30,000 for employers who are 50 or older.

Additionally, the SECURE Act increases business tax credits for those setting up 401(k) plans for the first time. Prior to the Act, the business tax credit for the first three years of an employee 401(k) plan equaled 50% of qualified startup costs (without exceeding $500). This number has increased to $5,000 for businesses employing one to 100 workers.

Further, employers may deduct their match contributions, helping reduce their tax liability. In previous years, it may not have seemed feasible for SMBs to explore 401(k) plans as a benefits option, but the decreased limitations and increased advantages have raised the stakes.

3. Increased employee productivity and engagement

Offering a 401(k) can do more than support retirement, it can also enhance workplace performance.

Research shows that 70% of Americans feel financially unhealthy, and over half don’t have enough savings to cover an unexpected $1,000 expense. An employer-sponsored retirement plan can ease workers’ financial stress, show employees that their long-term well-being matters, and in turn, lead to increased efficiency and a stronger company culture.

For brokers: Key considerations surrounding 401(k)s

Brokers must be aware of various state and federal legislation related to employer-sponsored 401(k) plans:

State mandates

Many states now require employers to offer retirement plans to their employees. For example, New Jersey employers with 25 or more employees that don’t have a retirement program and have been in business for at least two years must facilitate enrollment in the state’s Secure Choice Savings Program.

As a PEO broker and trusted advisor, it’s crucial to keep clients informed about market demands and changing regulations while also providing options tailored to their business goals.

SECURE 2.0 Act

The SECURE Act, signed into law in December 2019, is designed to help SMBs provide their workers with more affordable and easier-to-manage “safe harbor” retirement plans.

Brokers should note that the SECURE 2.0 Act expanded provisions and incentives to include:

• Enhanced tax credits for SMBs setting up retirement savings for employees
• The opportunity for companies to match contributions to employee retirement savings accounts based on their workers’ student loan payments
• An increase in catch-up contributions for older workers
• Qualification of part-time workers for employer retirement plans
• Starting in 2025, businesses that offer 401(k) and 403(b) plans must automatically enroll eligible employees and provide a contribution rate of at least 3%

Under the SECURE 2.0 Act, employers that sponsor 401(k) or 403(b) plans must automatically enroll eligible employees, start contributions at a minimum of 3%, and raise that rate by 1% annually until it reaches at least 10% of wages. Employees, however, can choose to opt out.

Click here to view the complete SECURE 2.0 Act >>

PEO: A value-added partnership

Brokers play a key role in helping clients identify the right solutions to strengthen their benefits strategy. Partnering with ExtensisHR, a highly certified PEO, equips you with flexible plan options to help clients compete against larger companies.

Through a PEO, your clients can reduce administrative burden, simplify compliance, and access high-quality retirement plans at competitive rates, often more cost-effective than private 401(k) options.

Saving for retirement is a matter of when, not if, for all employees. With ExtensisHR, you can offer your clients support in setting up 401(k) plans, as well as guidance and resources on eligibility requirements, vesting, matching, profit-sharing contributions, and tax incentives. With a wide variety of investment options available for SMBs, they can make any necessary changes as their organizations grow.

Financial stability will always be an attractive employee benefit. ExtensisHR is here to help your clients improve their benefits package and help you grow your book of business. Contact us today to learn more.