Since employee 401(k) plans have come into being, society has gotten to study decades of real-world retirement savings. Over time, we’ve learned about real-world applications and behavioral techniques that can encourage savings. Recently, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed to adjust 401(k) contributions and benefits to accommodate everything we’ve learned about retirement savings.
As an employer, the SECURE Act 2.0 offers many important benefits. Beyond reducing the cost burden of offering retirement accounts, it also helps you attract talent, retain workers, and save money on your taxes.
What is a 401(k) going to do for my company? How can 401(k) benefits be incorporated into my payroll system? Read on to learn the answers to these and many more questions.
What Is SECURE 2.0?
In late 2022, the SECURE Act 2.0 was signed into law. It was designed to be an extension of the SECURE Act of 2019. While there are many provisions in this plan, changes to 401(k) contributions and employee 401(k) plans are likely to have the largest impact on companies.
This plan specifically offers credits for auto-enrollment, matching contributions, and administrative fees. For example, workplaces that use auto-enrollment to get their workers enrolled can get a $500 credit per year for up to three years.
Ultimately, the goal of SECURE 2.0 is to address the retirement crisis that is facing the United States. Because of a decline in birth rates, 2020 was the first year that the number of people above working age was more than the number of people below working age. This change will put a strain on Social Security over the next few decades. New measures will be necessary to fill the gap, and SECURE 2.0 is a response to this demand.
Top 10 Benefits of SECURE 2.0 for Employers
What is a 401(k) benefit for employers? More importantly, how does SECURE Act 2.0 reduce the cost of providing 401(k) benefits for your workers?
By going through a 401(k) setup for your workers, there are a number of important benefits you can enjoy.
1. Make Employee 401(k) Plans More Cost- Effective
Only 34.7% of the small businesses that were started in 2013 were still in operation in 2023. Running a small business is difficult, and offering benefits can strain your budget.
Fortunately, SECURE Act 2.0 makes providing 401(k) benefits much cheaper. It basically creates a graduated credit that decreases over the first five years of the plan. In years one and two, you can get a tax credit of 100% of employer 401(k) contributions for up to $1,000 per worker.
Then, this figure drops to 75% in year three. In year four, it declines to 50%. During year five, you can get 25% of your contributions to an employee 401(k) in a tax credit. Throughout all five years, the cap on any credit amount is $1,000 per qualified worker.
This type of credit means you don’t have to worry about paying the entire cost of your contributions for five years. If you’re a small business that wants to offer benefits and has a shoestring budget, SECURE Act 2.0 can make providing retirement contributions more affordable. Retirement contributions can also be incorporated into your payroll system, so it doesn’t have to take a lot of time to administer.
2. Decrease Turnover Rates
By offering 401(k) benefits, you can save your company up to $100,000 a year on employee turnover costs. Employees are 40% less likely to leave a business in the year after they’re offered employee 401(k) plans. If you’re part of a sector that doesn’t traditionally provide these benefits, this figure jumps to 54%.
Retaining top talent doesn’t just save you money on recruitment and training. It also ensures that you don’t lose your company’s institutional knowledge. If you lose an employee who has been with the company for a decade, you’ll have to spend extra money to entice a replacement with the same level of training.
3. Get 401(k) Setup Costs Covered
Through SECURE Act 2.0, workplaces can also get some or all of their 401(k) setup costs covered. If you have less than 50 employees, you can get up to $250 of your administrative costs covered per worker. The maximum credit is $5,000, so a workplace with 20 non-owner, non-highly compensated employees could max out this credit.
Additionally, you don’t have to use the credit for just your administrative costs. You can also use it to pay an advisor to talk to you about the plan or to educate your workers about it.
4. Help Employees Build an Emergency Fund
Only 63% of people who need $400 in an emergency can cover the cost upfront. For many, financial hardship limits their ability to use a retirement plan. If employees are worried that they may need their contributions back, they won’t want to lock up their cash in a 401(k).
SECURE Act 2.0 is working to change this situation through something that is known as pension-linked emergency savings accounts (PLESAs). These accounts exist within the employee’s retirement plan, and they can contribute up to $2,500 a year with after-tax money. Then, the worker can withdraw penalty-free money up to four times a year if they experience an emergency.
5. Improve Employee Financial Stability
On top of the PLESA policy, SECURE 2.0 is also allowing employees to pull out up to $1,000 a year from their retirement account if they have a personal emergency.
Thanks to these measures, employees can be more financially stable. This means you’re less likely to have non-productive workers who are exhausted from sleepless nights of worrying about money. If your workers are more financially secure, they are also less likely to need second jobs or gigs in their off-hours, which can enhance their productivity at work.
6. Appeal to Job Applicants
Nearly 9 in 10 workers say retirement benefits are a must-have when they’re searching for a new job. If you don’t have retirement benefits, you could end up losing the war for talent.
In a Mission to Grow podcast on, “401K Tax Savings for Small Businesses: Real World Examples,” Kevin Gaston, director of plan design consulting at Vestwell, discussed the psychology behind providing benefits to your workers. According to Kevin, “Benefits on a dollar basis buy more goodwill than dollars do.”
There’s a psychological aspect to providing benefits. If you give someone cash that’s worth the same amount of money, it doesn’t feel the same. Adding a big benefit to your retirement plan feels more generous. When you’re trying to appeal to prospective employees, benefits can also help you stand out.
7. Have More Productive, Satisfied Workers
When you offer retirement benefits, it motivates your workers to stay with the company long-term. Additionally, a large number of employees report that financial problems are a major cause of stress. By working to reduce this source of stress, you can improve your workers’ productivity and job satisfaction.
8. Keep Your Tax Deductions
What is a 401(k) going to cost my workplace? Will I lose deductions?
Your 401(k) contributions can still earn you a tax deduction. SECURE 2.0’s added credits don’t eliminate the deduction. However, the credit for your employer contributions must be taken first. Once you run out of the tax credit, you can go back to using a deduction for the rest of your contributions.
9. Help Workers Save for Retirement
On a moral level, SECURE Act 2.0 makes it easier to be a good employer. You don’t have to struggle financially to help your workers. SECURE 2.0 provides credits for 401(k) setup, the provision of auto-enrollment, and 401(k) contributions. As a result, you can help your workers while helping your company.
10. Win the War for Talent
Thanks to changing demographics, the war for top talent is only going to continue. Workers expect retirement benefits, and they’ll prioritize future employers who offer them. Once they work at your company, they are more likely to remain if they have a retirement account and employer contributions.
Discover an Easier Way to Set Up 401(k) Benefits
With SECURE Act 2.0’s 401(k) setup benefits, you can spend less money offering an employee 401(k) to your workers. Additionally, you can get tax credits for employer 401(k) contributions. Whether you wish to be a good employer or simply want to retain workers, setting up 401(k) benefits can help.
To learn more about getting employee 401(k) plans in your workplace, reach out to our team of small business payroll and HR experts today.