If your small business wants to attract – and keep – the most talented and qualified employees out there, it must offer salaries and benefits that are at least as attractive as those provided by your competitors. And, quite clearly, one of the best benefits you can offer these days is a 401k retirement savings plan. Largely gone are the days when employees could count on employer-funded pension plans to help build a nest egg for their retirement years. Today, the 401k plan is the most attractive of the new wave of retirement savings plans.
WHY EMPLOYEES LIKE 401K PLANS
Of the various retirement plans available today, none is more flexible than the 401k. Its flexibility makes it popular not only with prospective employees but with small business employers as well (more about that later). From the employee’s point of view, the 401k’s flexibility allows enrolees to decide on their level of participation – the percentage of pre-tax income they’ll contribute on a weekly basis. Periodically, they’ll have an opportunity to reduce or raise their contribution.
Depending on the scope of the plan that is offered, employees can decide how much of their 401k savings to invest in an assortment of investment vehicles, which vary in their level of risk. An employee who’s looking at 30 to 40 years of work before retirement may well be willing to assume a higher level of risk for the possible chance of earning greater income. On the other side of the coin, an employee who is nearing retirement will probably want to put his 401k savings in funds that have significantly lower risk. This flexibility often translates really well in employees minds, and combined with other benefits like health and dental can go a long way to increasing your organisations productivity.
TAX SAVINGS FOR EMPLOYEES
Mentioned in passing above but deserving of greater attention, employee contributions to their 401k plans come from pre-tax earnings. This allows employees to at least temporarily shelter a portion of their income from taxes. When the time comes to begin withdrawals from their 401k accounts – or successor accounts – they’ll have to pay taxes on those funds. But that’s years down the road and will probably come when they’re in a much lower tax bracket.
Last but far from least, many small businesses with 401k plans match employee contributions – at least in part – which provides workers with found money. That sort of incentive is almost impossible to resist.
OTHER 401K BENEFITS FOR EMPLOYERS
While offering prospective employees a competitive salary may get them in the door, adding a 401k plan to their benefit package is one way to ensure that they stay around. For small business owners, 401k plans are definitely a recruiting magnet. But there are plenty of other reasons to like these plans.
If you decide to help your employees build their retirement savings by offering matching contributions to their 401k plans, your contributions qualify you for tax deductions. Additionally, small businesses with less than 100 employees may qualify for up to $1,500 in tax credits in return for setting up a 401k plan.
PREPARE FOR RETIREMENT
Your employees are not the only ones who should build a nest egg for their retirement years. You can benefit from your company’s 401k plan by opting in yourself and setting up an individual account into which you can plough pre-tax earnings. You’ll be preparing for your long-term future and saving on taxes at the same time.
Offering a 401k savings plan to your employees is a tangible sign that you care about them and their futures. Sadly, there is often a tendency among the young, no matter how bright they may be, to overlook the importance of making provisions for the days when they’ll no longer be bringing home a pay check. By offering a 401k plan and trying to educate your employees about its importance, you may be able to protect some of them from their own tendency to put off until tomorrow matters that demand their attention today.
IT’S A NO-BRAINER
As the job market climbs out of its long-time slump, employers need to stay at the top of their game to attract the best employees. Obviously, offering competitive salaries is essential, but you’ll need to supplement that with an attractive benefits package – preferably one that features a 401k retirement plan as its centrepiece.