So...Why Go With a 401(k)?
Offering benefits is one of the best ways to ensure your employees are happy, remain loyal to your company, and want to help you make it succeed. Many employees cite retirement plan options as a primary benefit they seek when deciding where to work. As such, offering a strong retirement plan can help you attract and retain the people you need to run your business and can be a smart way to level the talent competition between you and larger businesses.
Substantial Tax Favored Savings Opportunities
401(k) plans provide business owners and their employees the opportunity to save significant amounts each year for retirement. While there are other retirement vehicles such as SEPs and SIMPLE IRAs that can be used for the same purpose, oftentimes contribution opportunities are too limited or, in the case of a SEP plan, the cost to fund a substantial contribution for the business owner is too great.
In addition, 401(k) plans offer many features that are not available in SIMPLE IRAs and SEPs. For example, 401(k) plans can include loan provisions and can allow employees, irrespective of compensation, to invest their contributions in the form of Roth or Traditional Pre-Tax contributions. The table below provides a brief comparison of contribution limits and plan features.
|Employee Contribution Maximum||$22,500||$15,500||N/A|
|Employee Catch-Up Maximum||$7,500||$3,500||N/A|
|Maximum Aggregate Contribution (employee and employer)||$66,000
(under age 50)
|$15,500 + Match*
(under age 50)
(age 50 or over)
|$19,000 + Match*
(age 50 or over)
|Opportunity for Disparity in Owner vs. Staff Contribution||Yes||No||No|
|*Plus matching contributions of up to 3% of any salary, or 2% elective contribution on up to $330,000 in income.|
With 401(k) plans, employers have the ability to include a profit sharing feature. Profit sharing contributions are made on a completely discretionary basis from year-to-year and can even be made in different amounts for different employees. This flexibility provides owner employees tremendous flexibility in putting away substantial sums for them and their employees in good years and limiting required contributions in not so good years.
Only 14% of small employers offer 401(k) plans to their employees. That’s very bad news, as we know 401(k) plans are effective in influencing retirement savings, even among modest income employees. Consider the chart below. Clearly, employees left to their own devices are not nearly as likely to save for retirement as those that have the opportunity to save through an employer sponsored retirement plan.
You may have heard setting-up and maintaining a 401(k) is complicated and expensive. That’s true with a lot of 401(k) products, but Smart(k)® is affordable and makes 401(k) set-up and administration easy. Once set-up, your day-to-day involvement in administering your 401(k) plan will be limited to submitting contributions and employee data and to keeping Smart(k) informed of ownership and structure changes at your company.
Employees have real time access to their accounts through Smart(k)’s state of the art mobile and web applications, making it easy for them to analyze and manage their accounts.
Recognized and Valued by Employees
Without a doubt “401(k)” is the most recognizable term when it comes to saving for retirement. Employees know and understand, and in many cases, expect a 401(k) benefit from their employer. Sponsoring a 401(k) plan not only provides great savings opportunities for employers it can also provide credibility for small employers and can help in the recruitment and retention of team members.
Who Doesn’t Like a Tax Credit?
Tax credits can off set potentially more than half of the cost of a new small business retirement plan, up to a $5,000 maximum (but never less than $500). Additionally, if the new plan automatically enrolls employees into the plan on a uniform basis (but at no minimum rate), you will receive an annual credit for start-up costs of $500 per year.