In light of the 2023 survey conducted by Charles Schwab, it is imperative to recognize that 88% of the workforce views a 401(k) plan as an essential and non-negotiable benefit when embarking on a job search. As a small or midsize enterprise, you may have previously harbored reservations about the perceived costliness of offering a 401(k) plan to your employees. However, the advent of the SECURE 2.0 Act has ushered in a new era of affordability, enabling you to stand toe-to-toe with major corporations in the quest for top-tier talent.

Intriguingly, less than one-third of young adults, a mere 30%, express genuine satisfaction with their existing benefits package. The SECURE 2.0 Act presents a unique and timely opportunity to augment your benefits portfolio by incorporating a 401(k) plan, thereby enhancing your capacity to attract the most exceptional talents.

Defining the 401(k) Plan: A 401(k) plan is a mechanism that empowers your employees to amass a retirement fund while reaping the benefits of tax advantages. Under the 401(k) structure, employees are cognizant that a percentage of each paycheck will be allocated directly into an investment account. In your capacity as the employer, you have the prerogative to match a portion or the entirety of this contribution.

Your employees are bestowed with the freedom to select from an array of investment options, typically manifesting as mutual funds. The attractiveness of a 401(k) plan for employees lies in its inherent tax advantages, the effortless nature of automatic contributions extracted from their paychecks, and often, the prospect of your company matching their contributions.

Common Inquiries Pertaining to 401(k) Plans for Small Businesses:

  1. Is my company too small to offer a 401(k) plan? The core principle underpinning the SECURE 2.0 Act is to grant businesses of all sizes the ability to furnish a 401(k) plan. Diverse plan types are available, even tailored to companies with minimal employee counts.
  2. Do I have to match employee 401(k) contributions? Matching employee contributions is not obligatory; nevertheless, thanks to the novel SECURE 2.0 legislation, it might be prudent to consider. The SECURE Act 2.0 extends a tax credit for employers engaging in matching or profit-sharing contributions.

It is noteworthy that you have the flexibility to offer a plan sans matching contributions, a far more favorable prospect than the absence of a 401(k) plan altogether. Remember, you also                       retain the option to provide an annual profit share into the 401(k) if specific revenue targets are met, thereby exemplifying the malleability inherent in 401(k) plans.

  1. Can my small business afford to offer a 401(k) plan? The advent of the SECURE 2.0 Act has rendered 401(k) plans more cost-effective than ever before. For employers boasting up to 50 employees, the SECURE 2.0 legislation encompasses a tax credit that encapsulates 100% of administrative costs, with a cap of $5,000. Diverse tax credits are applicable to employers with workforces exceeding 50 individuals.

Numerous states, California, Illinois, and New York among them, mandate that employers institute retirement programs. A 401(k) plan, in many cases, proves to be a more cost-effective and versatile alternative compared to adhering to state-mandated programs. To gain deeper insights, we encourage you to reach out to one of our experts in payroll and 401(k) management.

The Profound Gains of Extending a 401(k) Plan within Small Businesses:

  1. Employee Expectations: Foremost among the compelling reasons to introduce a 401(k) plan to potential employees is the widespread anticipation of such a benefit. Failing to offer a 401(k) places you at a distinct disadvantage in the competitive landscape of talent acquisition.
  2. Reducing Turnover, Augmenting Productivity:  The financial acumen imbued by a 401(k) often translates into heightened diligence and allegiance.
  3. Business Tax Deductions: Matching 401(k) contributions tend to be tax-deductible, a significant fiscal advantage. The SECURE 2.0 Act elevates this to a new level. Businesses featuring 50 or fewer employees can claim a credit for the employer’s contribution for the initial five tax years following the plan’s initiation, with a maximum of $1,000 per employee. Your business is entitled to claim 100% of the employer contribution during the first and second tax years. Subsequently, the entitlement diminishes to 75% in the third year, 50% in the fourth year, and 25% in the fifth year.

For businesses employing 51 to 100 individuals, the credit experiences a slight reduction. Moreover, for businesses boasting up to 50 employees, the SECURE 2.0 Act introduces a tax credit that envelops 100% of administrative costs, up to a cap of $5,000.

What Constitutes a 401(k) Employer Match?

An employer match, often referred to as a 401(k) employer contribution, represents a monetary sum contributed by the employer that typically mirrors the employee’s contribution, up to a specified maximum amount.

401(k) Employer Match Example: To elucidate, let us consider the hypothetical case of Joe’s Pest Control, LLC, which matches 100% of employee contributions up to 5% of the employee’s salary. Suppose Mike earns $1,000 weekly and opts to contribute 5% of her salary. As a result, Mike witnesses $50 per week being automatically diverted from his paycheck to his 401(k) plan.

In a synchronized manner, Joe’s Pest Control disburses a matching contribution of $50 per week. Consequently, Mike observes $100 per week being channeled into his 401(k).

The Rationale for Offering a Matching Contribution: In the ongoing war for talent, your business necessitates every competitive edge in the quest to attract and retain employees. It is worth noting that the SECURE 2.0 Act incentivizes small businesses to institute matching contributions through the dispensation of tax credits.

It is customary to encounter 401(k) matches that range from 50% to 100% of employee contributions, up to a predetermined percentage of the employee’s salary, often pegged at 6%. When evaluating the cost, some of which is tax-deductible, in comparison to the expense incurred from losing employees to rival entities offering 401(k) matches. Remember, your business will now need to recruit, interview, and train the new employee. There’s also the loss of institutional knowledge and potential demoralization of your team when coworkers leave.

Effectively Promote Your 401(k) Plan to Attract Potential Job Applicants

  1. Incorporate 401(k) Details in Job Postings: Ensure that prospective job applicants are well-informed about your 401(k) plan. In the spirit of transparency, consider including 401(k) benefits in your job postings.
  1. Harness the Power of Employee Referral Programs: Empower your employees to champion your retirement plan, promoting it through their personal and professional social networks. The implementation of an employee referral program can be a cost-effective and highly impactful strategy for talent acquisition.
  2. Develop Comprehensive Marketing Materials: Create written and online materials that comprehensively outline the key features and advantages of your 401(k) plan. Disseminate these materials at trade shows, job fairs, and individual job interviews to ensure that potential candidates are well-informed and appreciative of the retirement plan you offer.
  3. Establish a Dedicated Retirement Information Center: Build a dedicated retirement information center on your careers website and intranet. This platform should furnish comprehensive information and frequently asked questions (FAQs) to facilitate the understanding of your 401(k) plan’s potential in enabling a more comfortable retirement. Remember that retaining your employees not only preserves your organizational culture but also yields cost savings.
  4. Visualize the Long-Term Benefits: Employ a visual approach to elucidate the long-term financial advantages of 401(k) savings. Emphasize how pre-tax contributions can reduce take-home pay and tax liabilities. Provide access to a retirement calculator that enables individuals to visualize their retirement prospects.
  5. Highlight Ease of Participation: Incorporate user-friendly retirement plan administration software to streamline the process. By collaborating with a payroll provider such as GetPayroll, which offers an integrated 401(k) solution, you can ensure that your employees can seamlessly engage in the program.
  6. Maintain Open Channels of Communication: Sustain ongoing communication initiatives with your employees. Provide regular updates on plan benefits, enhancements, and annual contribution changes to maintain employee engagement. Offer monthly updates that showcase savings progress and growth. Ensure that there is a dedicated resource available to address questions related to the plan and retirement savings.

As an additional advantage, the SECURE ACT 2.0 now permits employers to align their 401(k) plans with their employees’ qualified student loan payments, further enhancing the appeal of your retirement plan.

Simplifying the Implementation of Your 401(k) Plan:

The most straightforward path to offering a 401(k) plan to your employees is by collaborating with a payroll provider that seamlessly integrates 401(k) plans into its payroll and HR services. This strategic partnership enables you to concentrate on your core business functions while the payroll provider manages the intricacies of plan administration, employee enrollment, and contributions.

At GetPayroll, we deliver a seamless, efficient, and user-friendly retirement savings solution. Our 401(k) offering is thoughtfully aligned with the Secure Act 2.0, unlocking substantial tax incentives for small businesses seeking to institute new retirement plans.  Contact us today to get started.