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A 401(k) plan is a critical benefit in today’s employment market. A 401(k) is an employer-sponsored retirement savings plan that helps employees invest money from their paychecks toward retirement. While the employee benefit of a company retirement plan is clear, the employer benefits are less well-known. Cost and administration are the two most common concerns employers site when choosing not to offer a 401(k). In reality, however, these are misconceptions that hold many employers back from offering a benefit that can have nearly as much upside to the employer as it does the employee. Below are some less recognized reasons for a Company to offer a 401(k) benefit to its employees:
Attract and Retain Employees – In today’s competitive employment market, a well-rounded compensation package is essential, and because of this, employees expect their employer to offer a 401(k), or similar retirement plan. Employer matching has also become an expectation, with employers averaging a 4% match across all industries. Offering a rich plan not only attracts, but helps retain, top talent. Employers who invest in employees have better retention rates and more engaged workers.
Investment has a Double Taxable Benefit – Tax savings is one of the most overlooked benefits to employers. Qualified employer contributions are exempt from federal, state, and payroll taxes, making them a great way to provide employees extra compensation. Additionally, employer contributions to a retirement plan are typically able to be expenses by the employer.
In addition, if an employer offers a Safe Harbor match, shareholders have the ability to participate fully, which may not be the case with other types of employer matching. In 2018, participants can contribute up to $18,500 per year on a pre-tax basis. If the participant is over 50, an additional $6,000 can be contributed for a total of $24,500. This means that a Company owner that contributes the full amount of $24,500 (assuming the owner is over 50), would realize immediate tax savings of approximately $10,000 when considering federal and state taxes. In a business with multiple shareholders, the tax savings add up quickly to offset the employer contributions to the remaining employees.
Costs are Lower and Administration Easier than Most Think – Most employers, especially small businesses, are under the impression they cannot afford to administer and offer a 401(k) plan. As open architecture plans have become more available, the administrative costs have decreased. For example, EctoHR pays approximately $1,000 per year in administration fees for its own 401K plan.
It is easy to see why 401(k) plans are such a popular benefit. No matter the company size, 401(k) plans can be structured to offer a clear benefit to both employees and the employer. In support of our goal to remain “vendor agnostic,” EctoHR works with several providers that administer retirement plans, including plans that work for most any size and type of organization. To learn more about how an organization could benefit from a 401(k), call EctoHR, Inc. at 810-534-0170.