When it comes to employee benefits, a 401(K) is mighty alluring. Essentially an employer-sponsored retirement plan, a 401(K) benefit allows employees to put aside pre-tax salary for retirement, while their employer matches with a corresponding percentage (or in some cases, matches dollar for dollar). Currently, the federal cap for annual employer contributions is $19,500 (subject to cost-of-living adjustments). Several more regulations limit what an employer can contribute, thanks to the Employee Retirement Income Security Act.
Within the structure of these federal rules, employers can customize their 401(K) plans to a model that best suits their company. The average matching employer contribution hovers around 50% to each employee’s dollar, with less than 40% of employers matching the full dollar amount. In almost all cases, a 401(K) represents an attractive savings plan for any employee, but what gets lost in a lot of discussions are the benefits 401(K) plans also offer to employers.
In a recent survey, over half of small businesses across the country admitted to no retirement plan for either themselves or their workers, listing unaffordability as the chief concern. However what this ultimately comes down to is an issue of misunderstanding – in reality, a 401(K) retirement plan can benefit companies as much as the workers they employ, and when judged by the most successful examples, even tend to pay for themselves in the long run.
There are two huge tax benefits to companies with 401K programs: firstly, any and all money matched by companies toward their workers’ savings is completely tax-deductible. This seriously lowers the tax burden of the employer – in fact, aside from deductions, elective deferrals and investment gains can’t be taxed until they’re distributed, opening up a lot of possibilities.
A 401K program also qualifies companies for business tax credits of up to $500 a year, for the first three years of enactment, which helps smaller businesses with the cost of set-up. It may not be an instant elevator to profits, but altogether, these tax benefits can go a long way toward stabilizing your bottom line.
As the world re-opens and employment opportunities begin to bloom again, benefits will be a cornerstone of attracting top talent. The choice to offer a 401K program is a rational one based in optimism & confidence – specifically the confidence that your investment in talent will eventually pay off in dividends.
With higher-quality candidates filling positions, your office will be immediately upgraded, with higher potential to innovate and execute the kinds of solutions that result in bigger profits, and bigger market share. Big benefits mean big business, and there’s no bigger benefit for many quality job-seekers than a top-notch retirement plan.
Once you hire top talent comes the part where you have to actually keep them motivated. Fortunately, 401K plans offer a wide variety of ways to do exactly that. Chiefly, many businesses offer tiered-support for employee matching.
A good benefits program can therefore reward high earners and strong performers with larger matching donations on each salary dollar put toward retirement. It’s more than a great way to reward loyalty in your employees, it’s a way to encourage loyalty in the first place. Employees who know you like to set top talent up for success will immediately have more reasons to remain your top talents.
Despite the nerves of setting up a retirement program, clearly it’s an investment that makes sense for everyone. It makes your workers feel taken care of, makes you a greater magnet for talent, and saves obligations come tax time. No matter which model you wind up using, it’s worth the time to investigate your options. Talk to someone at UBC today to learn more, and see which plan might be right for your business. We’re here to benefit you – and that starts with optimizing your benefits.