Today, more than ever, good employees are the lifeblood of successful companies.
With the retirement crisis becoming more evident during the global pandemic, unforeseen fluctuations in the economy have forced small business employees to reconsider their priorities – and one constant in discussions has been financial security.
Simultaneously, 12 states recently passed legislation to encourage and in some cases, mandate employers to provide employees access to retirement savings, making it clear that the employees’ financial security is increasingly becoming the employer’s responsibility. 64% of millennials and Gen Z-ers believe employers have a responsibility to help employees adequately save for retirement, yet small businesses continue to see much lower access and participation rates in retirement benefits than companies with 500+ employees.
With 88% of employees stating that a retirement benefit is a must when looking for a new job, one significant way to attract and retain employees is offering comprehensive benefits packages with a clear path to save for retirement. This is at odds with small businesses believing this vital benefit is an administratively burdensome or expensive perk for them – 59% say they are “too small” to offer a 401(k).
This discrepancy comes from a lack of financial wellness education by retirement benefit providers and the lack of 401(k) providers built to be affordable and easily manageable by small businesses. Since companies with 100 employees or less employ a third of the U.S. workforce, how can small business employers adequately address this problem to provide employees the clarity and tools they need to feel financially secure and prepared for the future?
The good news is, modern, technology-enabled 401(k) providers offer a transparent, simple experience for employers and employees to discredit some of these misconceptions. While it’s true that legacy retirement providers sometimes charge exorbitant, hidden transaction fees and have clunky, confusing platforms, modern technology (and the recent SECURE Act legislation) has been kind to the retirement industry in making this benefit more affordable and accessible than ever.
If you’re an employer who wants to provide your employees a clear path to financial independence and retain your most valuable employees, but may not know where to start, here are seven guiding principles to consider in your research for the right 401(k) provider and benefits possible from a 401(k):
- Your best employees, current or future, want this benefit. A retirement benefit is the second most requested benefit after health insurance, and happy employees are 20% more productive than unhappy employees.
- The SECURE Act tax savings make a 401(k) benefit less expensive than ever. The small employer plan start-up credit is now tenfold higher — up from $500 to $5,000 per year for 3 years. You can additionally earn $500 annual tax credit for adding an automatic enrollment option to your new or existing 401(k) plan.
- Your employees decrease your tax liability by contributing to a company 401(k). The contributions your employees make to a company 401(k) are deductible on your (the employer’s) federal tax return.
- Choose a provider who is transparent about all fees charged to you and your employees. Burdensome transaction fees are pervasive in the retirement industry. Fees can be charged for over 20 transactions, including loan setup, distribution, and rollover fees – oftentimes without the employee knowing.
- If you’re considering a company IRA, consider the potential savings implications compared to a 401(k). 401(k)s help you save more with faster growth compared to IRAs, as the permissible yearly contribution to a 401(k) is 3x the contribution limit of an IRA. You can contribute more funds, which makes a big impact over your career with compounding interest. Keep in mind that most state-mandated retirement plans are IRAs and may affect you and your employees’ nest eggs’ overall growth.
- Choose a provider with a platform that is the expert in offloading your administrative responsibility. When you’re researching 401(k) providers, do your due diligence to understand your administrative responsibility as a plan sponsor. Ask your potential provider how and if they support a payroll integration, the plan setup process, the filing of IRS documents, and ongoing plan support. Put your 401(k) provider to work, and not the other way around.
- Find a platform that encourages participation by its design and user experience. Some modern 401(k) providers can make it simple and streamlined to have employees set up their contributions in minutes, not weeks, and give guidance on how various contribution rates affect their future. An ideal platform helps your employees tailor their saving needs based on their risk tolerance and remaining working years.
Ultimately, the right company retirement option will likely vary based on several factors, including your company size, the features and services you want in a plan, the investment options available, the costs, time and effort to manage the plan, and the amount you hope to contribute, among others. After you’ve done your due diligence and settled on the right 401(k) provider, your employees will absolutely thank you for it.
Tenenbaum Law and Human Interest join forces
Tenenbaum Law has recently partnered with Human Interest, a modern 401(k) and 403(b) provider built for SMBs, to make it easy and affordable for you, our customers, to offer a retirement benefit to your employees. If you’d like an introduction to Human Interest, please reach out to email@example.com or firstname.lastname@example.org.
Nerio Rivera, Partner Account Manager at Human Interest
Nerio Rivera is presently a Partner Account Manager at Human Interest, an affordable, full-service 401(k) and 403(b) provider. He has been at Human Interest for over 10 months and is responsible for building a partner ecosystem to expand Human Interest’s reach in New York. Prior to Human Interest, Nerio has worked in the Human Capital Management Industry for 5+ years.