How to Attract and Retain Employees with a 401(k) Plan
With circumstances such as low employment and the labor shortage, business owners are looking for new ways to attract and retain top talent. An emerging solution for these recent hiring issues is implementing a 401(k) plan for employees.
According to a recent survey, four out of five employees indicate they want benefits and perks more than a pay raise, and a 401(k) ranks in the top five requested benefits.
Additionally, millennials and members of Generation Z find benefits even more appealing than their Gen X and Baby Boomer counterparts. In fact, 90% of employees 18 to 34 years old state they would prefer benefits over pay.
So what does all this mean for business owners? A 401(k) plan can help business owners to attract and retain top talent as well as provide a host of other financial benefits. Let’s discuss.
How Can a 401(k) Plan Attract Top Employees?
According to Forbes, 62% of candidates seriously consider the availability of a retirement plan when deciding whether to accept or remain in a job. Further, 76% of employees are likely to be attracted to another company that cares more about their financial well-being.
Millions of workers do not have access to an employer-based retirement plan. Therefore, by implementing such a plan at your business, you are automatically setting your business apart from its competition in the eyes of your candidates.
How Can a 401(k) Plan Help with Employee Retention?
A study done by the Society of Human Resource Management (SHRM) found that it typically costs 50%-75% of an employee’s annual salary to replace them. If your business has higher than average turnover rates, it might be time to look at the benefits of a 401(k) plan.
For instance, consider these factors when deciding whether or not to invest in a 401(k) plan for your employees:
Appreciation
A 401(k) plan grows in value over time. When employment ends, the retirement account means the employee will leave with something of value.
Compensation
Employees that feel that they are being compensated fairly for their work are more likely to stay in their current positions instead of searching for a new job. A 401(k) plan, or a lack thereof, is an important part of an employee’s compensation and contributes significantly to their decision to stay or leave their current organization.
Employee Engagement and Team Morale
Leaders who invest in the well-being of their employees are often rewarded with higher employee engagement, satisfaction, productivity as well as a thriving work environment.
Remote work, in particular, can cause employees to feel disengaged from their team and organization. Employers are utilizing 401(k) plans as a method to combat these challenges. Why? Many remote employees would prefer additional benefits over a pay raise.
What Are the Benefits of Using a 401(k) to Attract and Retain Employees?
Tax Credits
The Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed in December 2019. This act became law as of January 1st, 2020.
The SECURE Act proposes raising the current Retirement Plans Startup Costs Tax Credit. The SECURE Act permits an eligible small business to claim a tax credit for adopting a new 401(k) plan and a new automatic enrollment feature.
Tax Deductions
All businesses can claim a tax credit deduction for paying 401(k) plan-related expenses. For example, these expenses can include:
- Employer contributions
- Administration fees
Employer contributions to employees’ 401(k) accounts may qualify as ordinary business expenses. In this case, these contributions may be tax deductible up to the annual corporate deduction limit on all employer contributions (25% of covered payroll).
Interested in Setting Up a 401(k) Plan for Your Business?
Setting up a 401k retirement savings plan for your business is a great way to save money on taxes and provide your employees with a valuable benefit.
Consider contacting our team for assistance. At RWM, we provide a clear path to secure retirement for employers and employees of successful businesses. Learn more about us and why we do what we do, here.
Then, check out our blog for all the retirement savings jargon you should know, here.
This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.
