Do You Need a 401(k)?

There are three great and simple reasons why every small business owner should consider offering a 401(k) plan to their employees: it’s good for them, it’s good for you, and it’s good for business.

Obviously, those are some broad statements, but in this blog, we hope to give you some concrete reasons for starting a small business 401(k) and offer some resources on how to start a 401(k) for small business.

Those reasons include innovations in 401(k) administration that make it easier for companies of all sizes to manage a retirement savings plan.  A significant increase in affordability for employers that include some real tax savings and credits. Hiring and retention tools that can seriously help you grow your business. If you’ve ever asked how to start a 401(k) for my small business, this post should help clarify the benefits and point to resources on how to do it.

Why It’s Good For Your Employees

Providing Stability for Your Employees

The 21st Century job market may be replete with outlandish job perks like nap pods and free-range kombucha fountains, but according to one study, some 31% of employees valued a solid retirement savings option over a pay increase. That’s a benefit that benefits everyone. Workers today value financial stability and growth more than ever and with more and more millennials staring down the twin fears of student debt and a shrinking social safety net, the allure of a well-managed 401(k) can reduce stress, and increase loyalty to the company.

According to the Federal Reserve, some 63% of Americans either do not feel they are on track for retirement, or they are not sure if they are. Companies that offer 401(k) options to their employees — and especially those that provide automatic enrollment and a company match — give these Americans the access they need to financial vehicles that will secure their futures.

Why It’s Good for Small Business Owners

Tax Credits and Reducing Taxable Income

Over the last few years, the 401(k) regulatory landscape has changed significantly in order to incentivize businesses to offer their employees retirement savings options. The SECURE Act of 2020 boosted the $500 tax credit per employee for providing a 401(k) to up to $5000 for the first three years of the plan. This can be applied to 50% of the cost of setting up and administering that plan. That will lower the cost of implementing a plan and provide some real tax relief for small businesses.

But there are real benefits not only to offering a 401(k) but to offering company matches to spur better participation in the plan. Just like personal contributions, every dollar contributed by the company to an employee’s 401(k) is done so before taxes. This means that a business’ overall tax burden is reduced the more they and their employees participate in the plan.

Affordability and Ease of Administration

Over the last few years, 401(k) plans have become more affordable and much easier to administer, breaking down some of the biggest barriers to participation small businesses can face. Whereas decades ago, it would cost thousands a year to offer a 401(k) for a small business of less than 10 employees and 1-3% in fees for participants, LT Trust offers low cost support for small businesses.

We take the burden of managing your plan off of your plate, freeing up valuable time to grow your business and reducing the stress associated with managing a 401(k) plan.

With our new payroll integrations software, we essentially serve as your company’s back office, putting decades of experience to bear and reducing the barriers for you and your employees. When coupled with the tax implications mentioned earlier, it has never been more affordable for small businesses to offer 401(k)’s.

Owners Can Max Out

The company isn’t the only entity that can realize financial benefits from offering a 401(k). Business owners and some of their higher earning employees are able to save up to $57,000 per year if you are 50 years of age or younger.  Individuals that are over the age of 50 can save an additional $6,500. Of that $57,000, $19,500 needs to be the employee contribution and the rest is an employer contribution.  This is a significant opportunity to save while creating a tax shelter for the business.

Why It is Good for Business

It Attracts Top Talent

As we mentioned earlier, providing top-shelf benefits to your employees is an excellent way to attract the best talent for your teams. In a Glassdoor survey, 57% said benefits and perks are among their main considerations when evaluating a job offer. The fact is, not providing strong incentives to join in the form of benefits like a good retirement plan, is putting your company at a disadvantage.

Considering just how many Millennials (90%) say that they value a good benefits package over an increase in salary should help to put this into perspective. If you want great talent, you have to compete on the retirement plan front.

It Increases Retention Rates

It’s one thing to attract top talent, and it’s quite another to retain them. It can be costly in time and lost productivity to replace employees. Unlike previous generations, Millennials are more likely to have many jobs over the course of their careers, making employee retention a critical component of your business plan. Offering a strong retirement plan can help you avoid those costs while providing better experience for your employees and improving the company’s bottom line.

According to one study, roughly 80% of employees would prefer new or increased benefits over a pay increase. This is seen as an investment in their personal well-being and is often a marker employees will use to gauge other opportunities against. These investments in your workforce provide workers with an incentive to stay rather than seek greener pastures elsewhere.

More Satisfied Employees

Employee satisfaction is an important metric for HR professionals as it can indicate the overall health of your team. There are many factors that go into measuring employee satisfaction with the benefits your company offers being a major component. Aside from health insurance, a 401(k) was the next most important factor in keeping employee satisfaction up and was tied with paid time off.

How to Start a 401(k) Plan For Your Small Business

Now that you know the reasons why offering a 401(k) to your employees is just good business, it is important to understand how to start that plan.

Luckily, it has never been easier, more convenient, and more cost-effective for companies of every size to provide this critical benefit to their employees. LT Trust offers low-cost, full-service small business 401(k) plans with open architecture, which means we offer funds “at cost.” We take the burden of managing your company’s 401(k) program off of your plate, freeing you up to focus on growing your business and ensuring that you always remain compliant with 401(k) regulations.

Contact us to find out more about how we can help your small business finally implement a 401(k) plan that works for you.