Advantages of 401(k) Plans for Employers
Many employers know that offering a 401(k) plan to their employees is a good idea, but they tend to be unclear on what the benefits of 401(k) plans actually are. They may also have the misconception that offering a retirement plan is costly, which can ultimately sway them into not offering any type of savings plan.
But the reality is that offering a retirement plan is not as expensive as you may think. What’s more, aside from helping their employees save for retirement – which in and of itself is a considerable benefit – employers can take advantage of many benefits as well.
Employer tax deductions
Perhaps the most well-known benefit of 401(k) plans is the tax deductions – for both employees as well as employers.
"For 401(k) defined contribution plans, the matching dollars that a company contributes to their employees' plans are tax-deductible to the employer," says Tai Stewart, owner of Saidia Financial Solutions, a full-service accounting firm based out of Houston, Texas. "Like other benefits an employer pays for, contributing to their employees' retirement savings helps lower the overall corporate tax bill."
So just as employees can lower their tax liability the more they contribute, so can employers that match employee contributions.
Retain employees, save money
It's no secret that American workers are experiencing a retirement crisis. Nearly 55 million workers don't have an employer-based retirement savings plan, particularly those who work for small companies, as well as many younger workers, minorities, and low- to moderate-income earners.
Given this stark reality, businesses that do offer an attractive benefit, such as a 401(k) plan, can stand out among competitors that don’t. This can go a long way in building loyalty and retaining workers.
"Offering benefits such as retirement plans can definitely attract quality employees and reduce turnover. Employees are less willing to give up jobs that offer great benefits or more than just cash compensation," notes Stewart.
Another perspective: It will likely cost you more money to lose an employee than it will to match 401(k) contributions. Think about the costs associated with recruiting, interviewing, and training new employees. The higher the turnover rate, the more time and money a company can lose to its bottom line.
Business owners and saving
Just as workers should plan for their future, so too should business owners. However, many are not adequately planning for their later years or establishing any type of retirement savings.
According to an FBA/CNBC Business Owner Succession Planning Survey, 78 percent of small business owners plan to sell their business in order to fund 60 to 100 percent of their retirement. Although this may be possible for some, there’s no guarantee this will be feasible when it comes time to retire. The same report also found that less than 30 percent of small business owners don't actually have a succession plan.
There's also the notion that small businesses owners don't want to retire, and therefore don’t need to save because they will always work. But circumstances outside of their control such as illness may make a situation without a savings or exit plan challenging. That's why small business owners need to think beyond planning to sell their business and have a backup plan in the form of retirement savings for themselves.
Fortunately, when you offer retirement plans to employees, you may get access to better plans for yourself since many plans actually require the employer to offer the same benefits of a 401(k) to their employees.
Establishing a retirement plan can be a win-win for employees and employers alike. If you’re thinking about offering a 401(k) plan, consider the advantages of helping your employees save for retirement, along with the benefits for yourself – employee retention, reduced tax liabilities, and planning for your own retirement years.