Bust These 401(k) Myths That Could Be Holding Your Business Back
Starting a 401(k) plan is a powerful way to thank employees for their efforts. By helping improve their chances of retiring in comfort it can also give employees, or potential employees, a good reason to work for your company. While the benefits for employees may be obvious, what it can mean for a business owner may be less clear. Here are some common myths about starting a 401(k) plan, and the truth about what it means for employers.
Myth 1: It's Too Expensive to Offer a 401(k) Plan
The IRS offers tax credits for business owners creating a 401(k) program for their employees. The current credit covers 50 percent of eligible 401(k) startup costs up to a maximum of $500 per year. These tax credits are a direct effort from the Government to make starting a 401(k) plan affordable for small businesses.
Myth 2: My Employees Aren't Interested in Participating
According to a study by Metlife, 64 percent of employees said that a retirement plan is critical or very important to them. Paychex recently partnered with Harris Interactive to run a survey detailing how interested people are in 401(k) plans, and 40 percent of workers stated they would leave their company for another company offering a 401(k). It appears that these retirement plans are indeed important to many employees.
Myth 3: My Employees Can't Afford to Contribute
It's important to educate your employees about compound interest. At a 3 percent interest rate, adding $100 a month to a 401(k) plan will yield over $50,000 in savings in 30 years. Understanding the power of utilizing a 401(k) account may make employees feel like they cannot afford not to contribute.
Myth 4: Matching is Required
Matching a 401(k), while kind, is not required. It's OK to take baby steps. Start with rolling out the 401(k) plan, and then you can eventually start a matching program if you wish when you feel more comfortable. Matching is tax deductible.
Myth 5: I Don't Need a 401(k)
Have you caught yourself saying something like "I don't plan to retire," or "My business is my nest egg"? 401(k) plans can be seen as an investment, maybe a more sound investment than your business. The money you contribute will be eligible at age 59 ½ regardless of your current position. So you're collecting interest on money that is growing and working for you. Having a back-up plan is usually a smart choice.
Myth 6: It's Complicated to Set Up and Manage a Plan
Setting up a retirement plan for your employees doesn't have to be complicated. There are a plethora of resources online, which help ease the research process. Or you could enlist the help of a third party company who would do all the heavy lifting for you.
There is a lot of information out there about 401(k) plans and what is required from a company to get the plan rolled out. Don't let some of the common misconceptions steer you away from offering your employees a valuable perk. Knowing the facts and where you can turn to for help during the process can be a huge asset for you, your people, and your business.