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Encourage Your Clients to Offer a 401(k) Plan

Quick Look: The concept of “cool perks” in the workplace has shifted away from free lunches and company happy hours toward more meaningful and sustainable offerings. Employees have made it clear they want to work somewhere they can invest in their future. As a result, it’s no surprise the tried-and-true 401(k) plan continues to reign as one of the most competitive benefits, leading many SMB leaders to consider them for the first time.

In the heyday of hustle culture, company perks and benefits were designed to entice employees to spend more time at work. However, over the past two years, the workforce has evolved from an extended 9-to-5 work schedule at the office to creating a better work-life balance outside of it.

As people seek more quality time away from the office, and with an increasing number of employees now working remotely, the security of affordable healthcare, flexible work schedules, and retirement savings are what employees desire most. Though the “fun” incentives which attracted talented candidates pre-pandemic still have a place in the repertoire of what keeps companies competitive, the biggest focus is on the individual investment.

Whether the individual employee investment includes time spent at the office, quality productivity, and/or loyalty during business ebbs and flows, employees want to build toward something which will help secure their financial future. A 401(k) plan speaks to this intrinsic value and helps assure employees they’ll receive a positive return.

Though planning for retirement has often been a standard benefit for most large corporations, small- and medium-sized businesses (SMBs) are also reconsidering their value when recruiting top talent. In fact, many SMB leaders are incorporating retirement plans into their compensation packages for the first time. In 2021, 96% of all signed 401(k) plans were new, first-time plans, an increase of 7% from 2019.

Meanwhile, certain states are now requiring employers to offer 401(k)plans to employees. For example, as of March 2022, New Jersey SMBs with 25 or more employees without a retirement savings plan are required to facilitate enrollment in the New Jersey Secure Choice Savings Program. As a professional employer organization (PEO) broker, keeping SMB leaders current with market demand and changing regulations, while also providing options tailored to their unique goals proves invaluable during this constantly changing workforce.

How employers benefit from offering 401(k) plans

Encouraging SMBs to offer 401(k) plans for their employees offers significant benefits as they build and grow their companies. Not only does it improve recruiting and retention efforts across all demographics, it can also help lower a company’s tax liability. SMB leaders who focus on providing lasting value for their employees will find a greater sense of loyalty in return.

Competitive recruiting and retention advantage

Many job candidates consider retirement benefits an important factor and may look elsewhere if a 401(k) plan isn’t included as part of a compensation package. An Accenture study found 68% of workers ask about a 401(k) plan during the hiring process with 62% making it a deciding factor when accepting or declining a new job.

On the other hand, investing in employees incentivizes reciprocity through company loyalty. A 401(k) plan is often a small price to pay to retain a quality employee and continue building a strong team, especially when working with a PEO broker who can offer a customized, sustainable solution. Comparatively, employee retention can become quite costly for employers. Research shows recruiting and onboarding a replacement costs an average of $4,000 per hire, which includes decreased productivity for the duration of the recruiting period and a possible decline in employee morale.

Lower tax liability and higher tax credits

Another benefit of SMBs offering a 401(k) plan is a lower tax liability. SMB 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 2020, the sum was maxed to $19,500 of tax-deferred money for employers ages 49 and under and up to $26,000 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 enforcement of this legislation, 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 tenfold for SMBs employing one to 100 workers.

Furthermore, SMB employers matching 401(k) contributions for employees may qualify these as tax-deductible business expenses, further reducing 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 make it almost a necessity.

Benefits of partnering with a PEO

As a PEO broker, success comes with finding the specific plan which works best for each company. ExtensisHR’s Multiple Employer Plan provides SMB employers the flexibility of a standalone plan without managing compliance or incurring the expenses and administrative burdens associated with an employer-sponsored retirement plan. PEOs help reduce administrative expenses, paperwork, and other costs which may deter a company from moving forward and helps employers receive more quality and lower-cost plans than exploring private 401(k) options.

Saving for retirement is a matter of when not if for all employees. They want the investment they make now to pay off for them in the future. ExtensisHR can help your clients set up 401(k) plans and determine eligibility requirements, vesting, matching, and profit-sharing contributions. Each PEO solution is different and can be tailored to each company’s best interest. With such a wide variety of investment options available for SMBs, they can make any necessary changes as their businesses grow.

Even as the trends of the next “cool company perk” come and go, prioritizing financial stability will continue to be the most attractive option.

Time for a new 401(k) plan? Contact the experts at ExtensisHR to get started.

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