If yours is a small company, you may feel envious about the fabulous employee benefits packages offered by the big guys. Just like them, you need to attract and retain key talent to move your business forward. But with their fancy dry cleaning pick up service and pet insurance, how can you compete with larger companies?
You’ll need to take both a short-term and a long-term view. It’s challenging, we know, considering all of the hats you wear in the course of your day. To make things easier, we’re only going to talk about one benefit your company really needs: a 401(k) plan. This plan is so integral to your efforts to grab great talent, and so key to your business today and tomorrow, that we think it’s a good place to begin.
Now: Compete for Talent
While a 401(k) plan isn’t as sexy as vacation discounts or an on-site taco bar, it is beneficial to even the smallest companies. Employees expect to be offered a plan, and may pass on an opportunity to work for you if you don’t have one available.
They don’t necessarily want to know the plan’s details, but they do want to know it’s there. And, according to the Spark 401(k) Small Business Retirement Planning Index 2017, about 48% of employees who left their company reported that not having a retirement plan influenced their decision.
With that in mind, why do only about 50% of companies with 50-99 employees offer a 401(k) or similar plan, compared with more than 90% of very large companies? You may think it’s because plans are complicated.
Of course, any program that involves the tax code does have the potential for complexity. But the truth is that, by engaging a Third Party Administrator and an investment advisor, the plan can run smoothly, without distracting you (much) from your day-to-day business responsibilities.
So it must be the cost, right? Not really. You can enjoy some of the same tax benefits as can larger companies when you offer a plan. In fact, there are tax benefits available to small companies offering a 401(k) plan that are not available to big companies.
If you have fewer than 100 employees, your firm may be able to claim a tax credit up to $500 per year for the first 3 years you have the plan. This helps offset the cost of setting up and administering the plan. You can find details about this program on the IRS website, and be sure to ask your CPA about it.
Later: Promote Retirement Readiness (For You and Them!)
So far we’ve provided some of the short-term reasons it makes sense for a small business to offer a 401(k) plan. There are some excellent long-term reasons, too.
Many times owners of small companies see themselves retiring on proceeds from the sale of the business—eventually. Company profits may be sent back into the company rather than into retirement savings for the owners. When you sponsor a 401(k) plan for your employees and watch their account balances grow, you may have a harder time ignoring the opportunity for yourself—which may encourage you to save for yourself, too.
Perhaps the most compelling long-term reason to offer a 401(k) plan is its ability to promote retirement readiness for your employees. Often in small businesses, the people you work with become your daytime family, and you want to see them able to retire when they want to. But there are other reasons that, as a business owner, you want to see your employees retire on time.
First, it’s a matter of dollars and cents. Employees who delay retirement may cost more for your health plan, workers compensation, and a number of other programs. A recent study from Prudential (Why Employers Should Care About the Cost of Delayed Retirements) found that a one-year increase in the average age of retirement for a single employee costs the average employer $50,000.
This figure assumes that, under ordinary circumstances, the individual would have retired on time and a new, entry-level person would be hired, with the people in-between advancing a notch in the organization. The $50,000 represents “workforce costs,” which Prudential defines as wages and salaries, payroll expenses, insurance programs, retirement plans, and various leaves and benefits.
Employees whose sole reason to delay retirement is a lack of financial preparedness may be less productive. This, too, has a financial effect on the employer. Research from Lockton (Finding the Links Between Retirement, Stress, and Health) found that workers with high levels of financial stress use twice as much sick time when they aren’t ill as do non-stressed employees. The impact may be felt in productivity as well as health plan costs, because the study also shows that high-stress workers are three times more likely to take prescription drugs for chronic illness.
And finally, when older employees are unable to retire on time, younger workers who aspire to move up in the organization may become discouraged with the wait, leading them to seek opportunities elsewhere.
It’s a Joint Effort
When you offer a 401(k) plan, you’re beginning to tackle these important issues. But you’re only partway there. Make sure employees understand the reasons they should join the plan, and how to invest their savings to meet their retirement goals. If you choose the right professionals to help, these key points won’t be left up to you alone.
Instead, your TPA will use the latest technology to administer the plan, keeping costs down. Your plan’s advisor will make sure the investments offered are appropriate and that employees understand how they can take advantage of them. Together, you can make a successful 401(k) plan—even if your company is small.