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Bust These 401(k) Myths That Could Be Holding Your Business Back

Employee Benefits

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.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.