As a small business, you end up competing against major corporations for top talent. Unfortunately, large companies can often pay higher wages and provide more benefits than startups. However, there are a few benefits you can afford to offer that won’t break the bank. 

Thanks to SECURE ACT 2.0 and deductible 401(k) contributions, 401(k) plans are an incredibly cost-effective benefit for small businesses today. By investing in a 401(k) plan, you can significantly improve your company’s retention rates and position your organization for future growth. 

Ways a 401(k) Can Improve Your Small Business’s Growth and Retention

Often, small businesses don’t invest in a 401(k) for one of three different reasons. Small businesses may think it’s only for big businesses, or they may feel like it’s simply too complicated. In many cases, small businesses have a major knowledge gap about how to start a 401(k) and the advantages involved. 

If you want to prepare your company for success, a 401(k) plan is one of the first policies you should consider. Among other 401(k) benefits, you can enjoy having better retention rates, lower turnover, improved loyalty, and better productivity. 

Boost Employee Loyalty 

When you take care of your workers, it increases their sense of loyalty. Employees feel valued when they receive recognition and appreciation. A good retirement plan is a key way to show your appreciation.

Vesting Encourages Better Retention

Another one of the most important 401(k) benefits is retention. Even a basic 401(k) will improve your retention because of the complication involved in transferring a 401(k) plan to a new job. 

You can create a vesting schedule where only a portion of your 401(k) contributions are retrievable if an employee lasts a year. After a period of time, the funds are considered fully vested, so the employee can remove or transfer the funds. 

If the employee leaves prematurely, the vesting process stops. As a result, 401(k) vesting can encourage employees to remain at your company for longer periods of time. 

Reward Longevity 

At its heart, a 401(k) improves your company’s retention by rewarding workers who stay longer. Most companies require employees to work at the company for at least a year before they can receive a 401(k). Then, vesting provides a long-term incentive to workers who remain at your company.

Reduce Financial Stress on Employees

In a recent Mission to Grow podcast on “Unlocking the Power of 401K:  What Small Business Owners Need to Know for Growth and Retention,” Kevin Gaston, Vestwell’s director of plan design, discussed the importance of 401(k) plans for small businesses and workers. “Most Americans will take 50 to 70% of their income at retirement in Social Security payments,” says Gason. 

Unsurprisingly, major companies have responded to this financial stress by modifying their benefits. According to Gason, “If you look at the stats, the number of businesses that have adopted a 401(k) plan in the last five years is staggering. The business itself–the retirement universe of companies offering plans–has practically doubled in the last five years.”

Improve Productivity 

Employees are stressed about the state of their current finances and their ability to retire. By providing a 401(k) plan, you’re helping to alleviate this strain. 

When employees experience less financial stress, they tend to be more productive. They are also significantly less likely to quit. In fact, research shows a 401(k) plan can save your company $100,000 on turnover-related recruitment and retention costs.

Compete Against Other Workplaces That Offer 401(k)s

With today’s turnover rates, there are good odds that your employees have already worked at small businesses that have their own 401(k) plans. As a result, your workers are aware that small businesses are able to offer these plans, so they’ll expect the same benefit from future employers. 

For your business to grow, you need to attract top talent. One way to compete against other workplaces is by offering 401(k) plans and other desirable benefits. Other companies are already offering these plans, so you need to adopt the same benefits if you want to compete.

SECURE Act 2.0: How Tax Credits Save Money on 401(k) Administration and Contributions 

SECURE Act 2.0 was passed in late 2022 with the goal of improving the SECURE Act of 2019. Through SECURE 2.0, small businesses are given tax credits in exchange for providing retirement plans for their workers.

SECURE 2.0 Covers 401(k) Setup Costs

If you want to reduce the cost of offering a 401(k) plan, SECURE 2.0 can help. Workplaces that have less than 50 employees can receive as much as $250 per worker for their setup costs, up to a maximum of $5,000.

Get Credits for Contributions 

Through the act, you can also get credits for all of the contributions you make. In the first year, these credits are worth 100% of your contributions. Then, this credit falls to 75% in year three, 50% in year four, and 25% in year five. After the fifth year of your new 401(k) plan, the credit is phased out.

Use SECURE 2.0 for a $500 Automatic Enrollment Credit 

In addition to the previous credits, you can also get a $500 credit for simply setting up automatic enrollment for your workers. This credit can be taken for three years, so it can help offset some of your plan setup costs.

Learn More About How a 401(k) Can Boost Your Company’s Growth and Retention 

By setting up a 401(k) plan, you ensure your company’s long-term growth and retention rates. Fortunately, major tax legislation, like SECURE Act 2.0, makes offering a 401(k) plan more affordable than ever. 

To learn more about setting up a 401(k) plan at your company, reach out to our team of small business HR and payroll experts today.