As your business and your employee base grows, one of the most impactful decisions you will make is whether to supplement your compensation package with employee benefits.
A solid, affordable healthcare plan is the most popular benefit requested by employees and applicants, and most businesses choose to build their benefits package on this offering. But at what point do you consider adding a 401(k) retirement plan to your options? In a competitive labor market, that question may need to be answered sooner than later.
The Society of Human Resource Management (SHRM)'s Employee Benefits Survey (2022) reports that retirement savings plans ranked second in popularity only to healthcare benefits, with 94% of employers surveyed offering employees a traditional 401(k) and 68% a Roth 401(k) as part of their benefits package. In addition, a Betterment employee survey reports that 74% of employees would likely leave their job for an employer that offered better financial benefits, including a 401(k), 401(k) matching program, and a flexible spending account or health savings account.
"It’s important to consider adding a 401(k) retirement savings plan to your benefits package because retirement benefits are becoming increasingly important to employees," says Tilisha Conley, retirement plan manager for G&A Partners. “Much of their retirement portfolio is within their qualified plan at work. Offering a company 401(k) match is an attractive benefit to these employees who are depending more and more on their workplace retirement savings to fund their retirement.”
A retirement plan can help set up your employees for success in retirement and give you an edge over competitors as you work to recruit—and retain—top talent.
Following is important information to consider if your company is considering the addition of a 401(k) retirement plan or expanding your existing retirement benefits.
The ABCs of 401(k) Retirement Plans
A 401(k) plan is a flexible retirement savings plan. Employees participate through automatic payroll deductions (pre-tax dollars from each paycheck) that are invested in the plan’s offerings, typically an assortment of stock and bond mutual funds. Companies can also add value by matching a portion—or all—of their employees’ contributions.
There are three types of 401(k) plans:
- A traditional 401(k) plan allows employees to make pre-tax contributions through payroll deductions and employers to make contributions based on a vesting schedule.
- A safe harbor 401(k) plan is like a traditional 401(k) plan but must provide for employer contributions that are fully vested when made.
- A SIMPLE 401(k) plan is available to employers with 100 or fewer employees who received at least $5,000 in compensation from the employer in the preceding calendar year. Like a safe harbor plan, employer contributions are fully vested when made.
401(k) Options for Small and Mid-Sized Organizations
Many business owners have concerns about the short- and long-term costs associated with implementing a 401(k) plan. However, if you find it increasingly difficult to recruit quality candidates and retain valuable employees, adding a retirement plan option to your benefits package could help your company stand out among competitors and reduce the often-significant costs associated with employee turnover.
Small- and mid-sized companies trying to balance competing financial needs on a tight budget have unique opportunities to participate in 401(k) plans, including:
Multiple-Employer Plan (MEP) 401(k)
Companies that are not related can join a multiple-employer plan (MEP) 401(k), which provides access to a Fortune 500-level retirement plan by pooling assets and sharing administrative costs. To participate they must share a common business element or be part of the same professional employer organization (PEO), such as G&A Partners, which offers an MEP 401(k) with the following services and benefits:
- 401(k) plan administration
- Retirement planning options designed to match your company’s needs
- Mutual funds purchased at net asset value (NAV) and without a commission or sales charge
- Transparent participant fees
Pooled Employment Plan (PEP) 401(k)
A pooled employment plan (PEP) 401(k) option is like an MEP but does not require participants to share a common business element or be part of the same PEO to share costs and benefits.
To participate in an MEP or PEP, you must find a plan sponsor that performs administrative duties for member companies, known as “adopting employers,” and handles the costs, liabilities, and paperwork required to run a retirement plan.
Best Practices to Help Boost Your 401(k) Benefits
More and more American workers are looking to companies to provide a comprehensive benefits packages, including retirement plan options. As a result, business owners are searching for ways to enhance existing 401(k) programs.
Here are strategies that some companies have adopted:
- Relax 401(k) eligibility requirements. According to the Internal Revenue Service (IRS), 401(k) plans may require up to one year of service before employees make elective contributions. Relaxing your company's service eligibility period means that new employees can participate immediately upon hire or, for example, after completing 30 days of employment.
- Add (or increase) employer 401(k) matching contributions. Companies aren't required to make 401(k) contributions, but most do, according to the Wall Street Journal's "In Battle for Workers, the Humble 401(k) Gets Richer in 2022" by Lauren Weber and Anne Tergesen. If you’re competing for new talent and/or looking to retain valued employees, matching 401(k) contributions (or increasing your match) could help.
- Automatically enroll new hires in your 401(k). Employers can automatically enroll employees in their company's 401(k) plan, though it is not required (at this time) by federal law. If you choose to do so, your company can automatically reduce employees' wages by a fixed percentage (3% is standard) and contribute that amount to the 401(k) plan—plus any employer match you elect to make. Employees can opt out at any time or choose to have their wages reduced by a different percentage.
How Your Team Benefits from a 401(k) Retirement Plan
It helps to know how a 401(k) plan impacts your company and workforce before implementing a program. For example, many organizations choose to start (or enhance) a 401(k) plan because of the leverage it provides in their recruiting and retention programs.
"Retirement benefits are increasingly important to job seekers," states Business News Daily's "Should You Offer a 401(k) Plan, and if so, to Whom?" by Julie Ross. "Many workers ask during the job application process whether a company has a retirement plan such as a 401(k), and they seriously consider the availability of such a plan when deciding whether to accept or remain in a job."
Many workers ask during the job application process whether a company has a retirement plan such as a 401(k), and they seriously consider the availability of such a plan when deciding whether to accept or remain in a job.
— Julie Ross, Business News Daily
Your business and workers can also reap the following benefits through 401(k) plan participation:
- Enriched retirement savings for workers. Forbes Advisor's 401(k) calculator can help employees understand how much they can save for retirement by participating in their employer's plan
- Lower tax liability for employees who contribute to the plan
- Demonstrated commitment to employees' long-term financial health and well-being
- Business tax credits of up to $5,000 for eligible businesses implementing a first-time 401(k) plan
- Business tax deductions for employers that make matching contributions to employees' 401(k) accounts
Your 401(k) Plan Administration
Once you implement a 401(k) plan, your business must comply with the latest applicable tax laws, monitor new legislation, and communicate your plan’s requirements and options to employees.
“Consider outsourcing the administration,” states Ross in her Business News Daily article. “Bringing in an in-house expert can be very costly and doing so without experienced personnel could lead to mistakes or inefficiencies. By outsourcing, you improve efficiency and reduce liability.”
PEOs, such as G&A Partners, offer expertise in employee benefits options, including 401(k) plans. From plan design to ongoing administration, our dedicated 401(k) specialists will help you through every step of implementing your plan, including devising communication strategies that ensure your employees take full advantage of your 401(k) offerings. Contact us to discuss our 401(k) services, including MEP and PEP options.
How G&A Can Help
Insurance and benefits plans can be cost prohibitive for companies that run smaller operations and/or do not have a large workforce. G&A Partners offers small- and mid-sized companies access to top-quality benefits options by leveraging the buying power of thousands of client companies when negotiating with providers. We also keep your employer insurance premium costs in check so that your company has protection without placing undue stress on your budget. To learn more, schedule a consultation with one of our knowledgeable business advisors