Thanks to SECURE Act 2.0, there are many upcoming changes to how 401(k)s work for employers and employees. With 401(k) retirement plans, employers were previously able to get a deduction for each 401(k) contribution. 

Now, the employer benefits for setting up 401(k) are changing. You can also receive a tax credit for 401(k) contributions, and workers get additional benefits. 

As an employer, a 401(k) is not just a tax break. It is also more frequently offered by fast-growth companies than slow-growth. If you want to transition to a high-growth mindset, it may be time to rethink your company’s retirement plans. 

Fast-growth businesses are significantly more likely to have 401(k)s. Through SECURE Act 2.0, offering 401(k) plans is easier and cheaper than ever. 

Fast-Growth Companies Are More Likely to Offer 401(k) Plans 

Recently, Asure completed the 2024 HR Benchmark Report. This report compiled responses from over 1,000 respondents from small businesses. When it came to fast-growth companies and 401(k) retirement plans, there were a few striking takeaways. 

• 74% of fast-growth respondents offer 401(k)s. 
• 50.2% of zero-growth respondents had 401(k)s. 

The spread between these two figures is significant. Almost 25% more fast-growth companies have 401(k)s. If you look at the figures for small businesses, the difference is even more striking.

• 72.7% of fast-growth companies with 0 to 25 workers offer 401(k)s. 
• 31.8% of zero-growth respondents with 0 to 25 workers had 401(ks). 

If you’re a small business with 25 or fewer workers, your odds of being a fast-growth company go up by more than 40% if you are also offering a 401(k) plan.

Why 401(k)s Are More Common at Fast-Growth Companies

There are likely many different factors causing 401(k)s to be more common among fast-growth companies. The 2024 HR Benchmark Report uncovered the connection between fast-growth and 401(k)s, but it doesn’t say why businesses with 401(k) plans are more likely to be more successful. There are a few possible reasons this is happening. 

• Fast-growth companies, as a general rule, may be more likely to think long-term. This type of mindset could make them more likely to set up benefits. 
• Companies that are better capitalized are more likely to grow quickly. They can also afford to provide more benefits. 
• 401(k)s may attract better-quality workers. In turn, these workers drive growth. 
• Small businesses that understand the mechanics of running a business, like paying taxes and offering retirement benefits, are also better set up for future success in other ways.
• Top workers are more likely to remain at a company if it offers 401(k) benefits. This can improve productivity and decrease training costs.
• Workers who have retirement benefits are less financially stressed and more productive. Better productivity leads to more growth. 
• Absenteeism is lower if workers aren’t financially stressed. Often, financial stress causes illness, sleep problems, or other issues that lead to more absences from work. 

Retirement Savings Provide a Stop-Gap Solution for the Emerging Retirement Crisis

In recent years, baby boomers have been reaching retirement age at a rate of about 10,000 people per day. 2020 was the first year that people over working age outnumbered people under working age. This demographic shift is reshaping retirement and Social Security.

In part, SECURE Act 2.0 was intended to address this retirement chasm. It incentivizes employers to provide workplace retirement plans and 401(k) contributions, which helps workers prepare for retirement.

Top Talent Expects 401(k) Retirement Plans

Right now, 88% of workers say a 401(k) is a must-have benefit for future workplaces. Most likely, this expectation is one of the reasons why fast-growth companies are more likely to have 401(k) retirement plans. The best workers don’t want to work at a business that doesn’t provide retirement benefits. Without top workers, these businesses become zero-growth companies.

How Do 401(k)s Work?

So, what is a 401(k)? More importantly, how do 401(k)s work for small businesses? 

With a 401(k), employees contribute money with their pre-tax earnings. This basically reduces their taxable income in the present, so those dollars can earn interest. 

While it varies from employer to employer, many companies provide matching contributions that are worth around 3% to 6% of the employee’s pay. Companies can deduct this contribution from their taxes. 

Workplaces often use other tools, like vesting, to encourage employees to stay longer. Even the simple act of getting a 401(k) lowers the odds that a worker will quit. 

To make it easier to manage 401(k) retirement plans, many small businesses outsource their 401(k)s to a retirement account provider. With help, you can set up your 401(k) contribution options and get your workers signed up. 

What Are the Employer Benefits for Setting up 401(k) Plans? 

As an employer, a 401(k) helps you attract top workers and retain your best employees. Through SECURE Act 2.0, you can also get a tax credit for 401(k) administration costs, contributions, and auto-enrollment. 

There are a number of employer benefits for setting up 401(k) plans. 

• Attract and retain talent. 
• Reduce taxes through a mix of credits and deductions. 
• Support workers as they save for retirement. 
• Incentivize performance. 
• Boost worker satisfaction. 
• Lower the cost of setting up 401(k) retirement plans.

How SECURE Act 2.0 Changed the Game for Employers 

SECURE Act 2.0 has brought a range of new tax credits for employers and benefits for employees. On the employee side, student loans can now be counted as 401(k) contributions for the purpose of providing matching contributions. If your worker pays $400 in student loan debt, you can give them a $400 matching contribution in their 401(k).

Tax Credits for Contributions

One of the most important employer benefits for setting up 401(k) is the tax credit for 401(k) contributions. During the first five years of the plan, you get a credit of up to $1,000 per employee. As the years progress, the percentage of the contribution you can receive decreases. 

Year 1: 100%

Year 2: 100%

Year 3: 75%

Year 4: 50%

Year 5: 25%

This means a $1,000 contribution in the first year would be completely returned to your company as a tax credit. Meanwhile, the same $1,000 contribution would only lead to a $250 credit during the fifth year. Even if you max out your credits, you can still get a deduction for the remaining amount. 

Credits for Setup Costs 

Another one of the employer benefits for setting up a 401(k) is the setup credit. You can get up to $250 per worker. The maximum credit any workplace can get is $5,000. 

Auto-Enrollment Credits

The third major tax credit under SECURE Act 2.0 is for auto-enrollment. All new hires have to be auto-enrolled under the law. As a perk for auto-enrolling your workers, you can get a credit of $500 a year for three years.

What Else Do Fast-Growth Companies Do That Stands Out? 

During the 2024 HR Benchmark Report, there were a few other major things that fast-growth companies did that set them apart from zero-growth companies. 

• 90% of fast-growth companies offered health insurance, but only 65% of slow-growth companies did. 
• 89% of fast-growth businesses use an onboarding checklist with their new hires.
• 74% of fast-growth businesses provided wellness plans. In comparison, just 35% of zero-growth companies did. 
• 81% of fast-growth companies have made updates to their employee handbook during the last year.

Set Up Your Company’s 401(k) Today 

How do 401(k)s work? And how will SECURE Act 2.0 affect your 401(k) contribution? 

If you want to get employer benefits for setting up 401(k), you don’t have to figure out everything alone. Your payroll provider can walk you through the tax credit for 401(k) contributions and how to set up a new plan. 

To find out more about 401(k) retirement plans, reach out to our small business payroll and HR experts today.