Should You Offer A 401(k) Plan?

401(k) Pros And Cons | Employee Savings | Ohio CPA Firm
A 401(k) plan allows your employees to deposit a portion of their paycheck into a retirement savings account. Keep reading to why more and more employers are choosing to provide this benefit to their employees.

Hint: The Answer Is ‘Yes’

Offering a 401(k) retirement savings plan is one of the most beneficial things you can do for your employees and your business. This benefit helps attract new employees, improve morale with existing employees and provides numerous other strategic advantages for your company.

A 401(k) plan allows your employees to deposit a portion of their paycheck (pre- or post-tax, depending on the contribution type) into a retirement savings account. Oftentimes, employers also contribute a specific amount or percentage to these accounts as well. While these plans started as a supplement to pensions, these days they stand alone as an employee’s primary source of income during retirement. Keep reading to discover why a growing number of employers have started offering a 401(k) plan as part of their benefits package.


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Notably, a 401(k) plan:

  • Shows your employees you care. A 401(k) plan is an investment in your employees’ futures. In fact, many employees cite retirement options as one of the primary benefits they seek when deciding where to work. Moreover, studies show that having happy employees contributes to higher work satisfaction, lower turnover and increased profits.
  • Helps you build your own nest egg. With proper plan design, a 401(k) allows owners (and their family members) to defer up to $19,000 a year in retirement savings. Individuals older than 50 may defer an additional $6,000. When you add company match contributions or profit sharing contributions on top of these amounts each year, you can clearly see how a 401(k) plan can help you build a nice retirement plan balance for the future that is independent of your business. Another added benefit is the ability to make Roth pre-tax contributions with the same limits as 401(k). Roth IRA contributions are limited at certain income levels, but not when you make Roth contributions in a 401(k) plan.
  • Provides you with additional tax advantages. Contributions made by the company on behalf of employees are tax-deductible. Additionally, there is a $500 tax credit available for three years to help reduce the administrative cost of operating your 401(k) plan.

While there are a wide range of benefits associated with setting up a company 401(k) plan, there are also some hurdles to be aware of. For example, if you’ve never had or offered a 401(k) plan before, you might assume they are time-consuming and expensive to operate and that, even if you offered one, your employees wouldn’t participate, either because they don’t have the financial means to invest a portion of each pay, or because they just don’t see the benefit. Don’t fall victim to these misconceptions – a 401(k) plan is actually more feasible, valuable and engaging than you might think. Let’s debunk three common misconceptions.

  • Administrative difficulties. While the IRS may mandate employer contributions and requires certain rules to be followed when sponsoring a 401(k) plan, technology has made running these plans much easier. Enlisting a third-party administrator (TPA) is a great way to cut down on the administrative work while ensuring that your plan is compliant, which gives you more time to focus on running your business.
  • Employees won’t participate. Rea & Associates provides TPA services for numerous 401(k) plans. The majority of those plans have more than 75 percent employee plan participation, with many plans closer to 90 percent. The key to plan participation is employee education, which a good TPA and a 401(k) focused financial advisor will provide to you and your company.
  • Can’t afford an employer match contribution. While an employer match is not a requirement for a 401(k) plan, it is a great perk that encourages more employees to save. With the proper help, you can design a plan that is cost-effective for you, as the employer, while providing a meaningful benefit for your employees.

When working with a TPA, you can tailor your plan to meet your specific needs as well as those of your employees. Furthermore, there are many options for small business owners to offer these plans at an affordable price. When you couple the benefits of saving for your own retirement with the tax advantages of offering a 401(k) plan, you can’t afford not to offer this tremendous benefit for your employees. The pros truly outweigh the cons. Just be sure to find a plan administrator who offers a wide range of options, employee education, fair fees and proven experience. If you are interested in getting the ball rolling, give me a call. I would be happy to discuss your 401(k) plan options with you.

By Steve Renner, QKA (New Philadelphia office)

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