The ability for a business to offer a 401(k) plan is often seen as the benchmark of a large, successful company. Organizations with retirement benefits have been shown to attract better talent, while roughly a quarter of small businesses say that employees who leave for another company cite a lack of these benefits as a primary reason for leaving. But what about small/medium-sized businesses and less-than-established companies?
Many small & medium businesses still don’t offer 401(k) plans, usually because they think the cost will be too expensive for their business to bear. 27% of companies say they would consider offering these benefits if costs were lower, but nearly the same number don’t do so because of concerns about matching employee contributions.
(Statistics provided by Capital One)
Did you know that you can offer your employees 401(k) benefits without having to match? Some companies even offer profit-share matching as an alternative solution.
The Matching Myth
Many small and medium businesses put off offering benefits because they believe that they’ll be required to match contributions. But the decision of whether to match or not is completely up to you. One alternative is to offer a share of business profits that adjusts based on your business success. Some owners prefer this approach because it makes employees feel more personally invested in the success of the company.
Lower Costs Than Expected
In fact, 401(k) costs, in general, can be much lower for your small business than you might think. Admin costs for a company with 10 benefit participants can be less than $1,000 a year, while the government offers a $500 tax credit for each of the first three years of benefits. With over half of all small business owners saying that offering a plan helps attract and retain top-quality employees, the cost to benefit ratio can work in many companies’ favor.
Attract Talent, and Keep the Talent You Have
Of the small business owners that started offering 401(k) benefits for the first time, a quarter of them did so as a direct result of employee demand. If employees are demanding these benefits be made available at their companies, it’s a powerful sign that they may be one of the most effective ways to attract and retain top talent.
Don’t Forget About the Owner
A 401(k) doesn’t just provide appealing benefits to your employees—it’s also a potential means of protecting yourself for retirement. As an owner, you’re responsible for your own savings and retirement plan. Alarmingly, less than half of all small business owners are saving at least ten percent of their income. 25% have no savings at all, and nearly a third are depending entirely on selling their business sometime down the line to fund their retirement. But this can bring the risk of approaching retirement with far less than expected, and no backup plan in sight.
Establishing a 401(k) plan at your small business can not only show that you’re invested in your employees but can also provide a powerful investment in yourself.
No business owner, regardless of the size of their business, can completely rule out offering a 401(k) retirement plan for their employees. Regardless of what owners ultimately decide is right for their unique situation, it’s worthwhile to take the time to become educated about the facts and data behind 401(k)s for small businesses.