if you a small business owner, it can feel almost impossible to offer retirement plans to your employees. But it can secure your financial future – and that of your company too.
While only 22% of small and medium-sized businesses offer retirement plans, compared to 65% for larger organizations, the financial incentives to do so can pay off. research out HR management platform Gusto found that workers are 40% less likely to leave in their first year when offered retirement benefits, saving employers tens of thousands in turnover costs.
“Entrepreneurs can’t afford not to offer these benefits,” says Luke Pardue, economist at Gusto. “By offering a 401(k), you can see a return of over $100,000 in reduced employee turnover costs.
Continue reading: Small businesses are turning to benefits to retain talent
According to the US Small Business Administration’s Office of Advocacy, small businesses make up nearly 60% of businesses in the US and employ over 12 million people. And with Retirement planning challenging enoughit is imperative that employers and employees understand the importance of planning for their financial future.
“Retirement planning is one of those things that people don’t appreciate until they realize they need it,” says Steve Abbott, Gusto’s director of public policy. “It’s an indication that employers don’t necessarily think they have to offer it to be competitive.”
According to Abbott, employers don’t always know that their employees appreciate these financial benefits and are more focused on offering must-have benefits like health insurance. While important, the pandemic has highlighted the need to have one financial safety net — and employers, and even state and federal governments, are investing more and more to make sure that happens.
Already 14 states require employers to either enroll their employees in a state-sponsored retirement plan, which is typically a Roth IRA, or offer a plan through the private market. In addition, SECURE Act 2.0, which has yet to be signed, would offer a “Starter 401(k)” program that would limit contributions to $6,000 with no option for an employer match.
Continue reading: 5 ways SECURE 2.0 legislation could transform retirement planning
These plans are beneficial for getting workers to save some for their retirement, and the incentives for employers are also significant: Currently, companies with fewer than 50 employees receive a tax credit to cover up to 50% of retirement savings administration costs . If the SECURE Act 2.0 is passed, 100% of management fees would be covered and employers with up to 100 employees would qualify.
“As an employer, you’re missing out on all the tax benefits for yourself,” says Abbott. “Why wait for a requisition date when you can anticipate it and doing so will benefit you in many ways.”
Pardue says offering a 401(k) or other retirement benefit can be an important differentiator now that employees continue to do so Change of job in the midst of the Great Resignation.
“The range of offer now vs. later is the difference between 401(k) plans as a differentiator for prospective and current employees and an expectation,” says Pardue. “As more and more states require 401(k) plans, that won’t be a differentiator for you. A year later you will no longer be able to assert this claim.”
Whether a 401(k) plan is a recruiting or retention strategy, or just the right thing to do, the reality is that employees are prioritizing their financial security more than ever. Employers must have the resources ready.
“Everyone’s personal and financial lives have been turned upside down [during COVID]and as a result, many employees are more concerned about their financial security,” says Abbott. ”