Refine Your 401(k) Retirement Plan to Attract New Employees
Offering a 401(k) retirement plan enables small businesses to better compete with the "big guys" when it comes to attracting qualified job candidates. Doing so has become easier, thanks to a federal tax break for 401(k) plan startups, which allows small business owners with fewer than 100 employees to claim a federal tax credit of up to $500 per year for the first three years of the plan's existence. So small businesses, as well as their employees, benefit from plans that may serve as the individual's primary (or only) retirement account or become combined with various investment accounts like pensions or IRAs.
Offering a 401(k) retirement plan can be a powerful recruiting tool for small businesses. When qualified job candidates consider various job offers, they will often compare those offers in terms of culture, growth opportunities, and benefits packages. If potential employees know that you're committed to helping them save for retirement, they may be more likely to accept your job offer.
There are ways to refine your retirement plan offerings to enhance its appeal to prospective employees. Here are some considerations:
Offer a matching contribution to employee funds. Matching an employee's contributions represents a significant incentive for employees to enroll in a 401(k) plan. Paychex HR Consultant Janelle Rodriguez suggests that employers offer a match of three percent or higher. Remember, all of your matching contributions – up to applicable limits – are tax-deductible.
Share more details about the plan. "If you have a robust plan, let your job candidates know," says Paychex HR Consultant Susan Draper. For example, you could communicate to a potential new hire that the benefits package you offer includes a 401(k) plan, and highlight the benefits available with the plan.
Make it easy to enroll. Janelle Rodriguez believes that the "enrollment process should be electronic and seamless, minimizing challenges for entry and providing a wide range of educational resources in laymen's terms." Also, she says, it's a good idea to consider "shortening the service eligibility period, or making eligibility immediate instead of having to wait a certain amount of time."
Provide a range of investment options. When it comes to investments, it’s in an employer’s best interest to provide a broad range of investment options. A strong investment menu includes options that represent different markets such as U.S. stocks, international stocks, and bonds.
Offer a Roth 401(k) alternative. Most 401(k) plans offer a Roth 401(k) option, which can provide more benefits than a traditional 401(k) in some cases. For instance, because a Roth plan uses after-tax dollars, qualified withdrawals during retirement are tax-free. So while participants may pay more in taxes now, over time they may be able to save more for retirement. Offering this option into your plan may provide the choice and flexibility you're looking for in your company's retirement benefits.