How Can an Employer-Matching 401(k) Benefit Employers and Employees Alike?
Offering a 401(k) match for your employees can be a great way to ease their worries about retiring in comfort. The National Institute on Retirement Security has published articles indicating that retirement savings are dangerously low—the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households. If the average American retires at age 66 and the average American dies at age 78.7 they would need to find a way to live off of $12,000 (and social security payments) for nearly 13 years, which seems highly unrealistic.
Therefore, there is a significant need for employees to find companies that offer employee sponsored retirement plans and matches, as these potential benefits show.
Bringing in Top Talent
Many employers match their employees’ contributions to the 401(k) plan in order to help attract and retain talent at their company. By hiring and retaining employees with a high-caliber of talent, you may save money on training and attrition costs associated with unhappy or lower-performing workers.
Employers are generally permitted to take a tax deduction for their contributions to the plan at the time when the contributions are made. There are tax benefits for employees, too. Employees only pay taxes on contributions when they make withdrawals in retirement, unless they contribute to a Roth 401(k).
Automatic Enrollment May Help Everyone
Many organizations set up automatic enrollment for their employees. Although there must be an option to opt-out, automatic enrollment may encourage more employees to participate. It may also increase the allowable contribution levels, and lower your administrative cost-per-employee by reducing the time and effort involved when processing enrollment paperwork.
If matching is a way for you to retain great talent, vesting may help protect that investment. Vesting refers to the practice of delaying an employee's ownership of the company match (or any other company contribution, like profit-sharing) until a set period of time. This would discourage an employee from leaving the company before the date when they receive access to the funds from the company match.
These are only a few of the reasons 401(k) employer matching can be a great way to attract and retain your employees. For more on the topic, see Why Your Employees Aren’t Joining Your 401(k) Plan.