88% of workers consider a 401(k) plan a must-have benefit when looking for a new job, according to a 2023 survey by Charles Schwab. As a small or midsize business, you may have thought that offering a 401(k) plan was too expensive. But new legislation called the SECURE 2.0 Act is making it much more affordable. Now, you can compete with large corporations for top talent.

It’s no secret that people are willing to change jobs for better pay and benefits. A 2023 survey conducted by Georgetown University, in partnership with Bank of America, revealed that nearly half (46%) of employees say they are looking to change jobs in the next year.

And fewer than one in three young adults (30%) could say they were very satisfied with their benefits package. The SECURE 2.0 Act presents a unique opportunity to add a 401(k) plan to your benefits package to attract the best new employees.

Learn more about how Asure helps 100,000 businesses with payroll and our integrated 401(k) solution.

What is a 401(k) Plan?

A 401(k) plan is a way for your employees to build up a retirement nest egg while enjoying tax advantages. With a 401(k), the employee understands that a percentage of each paycheck will be paid directly into an investment account. You, as the employer, may match part or all of that contribution.

The employee selects from a number of investment options, typically mutual funds. Employees like having a 401(k) plan because it:

• has tax benefits for them

• is hassle-free, with contributions automatically streamed from their paychecks

• often comes with an employer matching part of their contribution

Common Questions About a 401(k) Plan for Small Businesses

Is my company too small to offer a 401(k) plan?

The idea behind this new legislation, the SECURE 2.0 Act, is to allow businesses of any size the ability to offer a 401(k) plan. There are different types of plans, even for companies with just a few employees.

Do I have to match employee 401(k) contributions?

No, you do not. However, thanks to the new SECURE 2.0 law, you may want to! That’s because the SECURE Act 2.0 offers a tax credit for employer matching or profit-sharing contributions.

That said, you may offer a plan without matching contributions. This is still preferable to not offering a 401(k) plan at all. Remember, you can also provide an annual profit share into the 401(k) if you meet annual revenue goals. 401(k) plans are flexible.

Can my small business afford to offer a 401(k) plan?

Due to the SECURE 2.0 Act, 401(k) plans are more affordable than ever before. For employers with up to 50 employees, SECURE 2.0 includes a tax credit that’s 100% of the administrative costs, up to $5,000. There are different tax credits for employers with more than 50 employees.

It’s worth discussing with a payroll and 401(k) expert at Asure. By not exploring this option, you could be losing the 88% of workers who list a 401(k) plan as a must-have benefit.

Many states, including California, Illinois, and New York, mandate that employers have a retirement program. A 401(k) plan can be less expensive and more versatile than your state-mandated plan.

Learn more by reaching out to one of our payroll and 401(k) experts.

What Small Businesses Have to Gain by Offering a 401(k)

Employees Expect It

The most overwhelming reason to offer a 401(k) to prospective employees is because if you don’t, most say they will go elsewhere for employment. Simply put, a 401(k) is now a baseline expectation when working for a company. If you don’t offer a 401(k), you’re at an immediate disadvantage when recruiting workers.

Decrease Turnover, Increase Productivity

Speaking to Business News Daily, Brian Halbert, founder of Halbert Capital Strategies, said his clients found that adding a 401(k) plan significantly increased worker loyalty and productivity. “The single largest benefit coming from a 401(k) is financially wise employees that have a zeal for working hard for their company. Oftentimes, we see the ROI in productivity and loyalty.”

Business Tax Deductions

Matching 401(k) contributions are typically tax deductible. (Not legal advice; consult a tax professional.)  The SECURE 2.0 Act takes this a step further. Businesses with 50 or fewer employees can claim a credit for the employer contribution for the first five tax years starting when the plan is initiated, up to $1,000 per employee. Your business can claim 100% of the employer contribution in the first and second tax years. Then, claim 75% in the third year, 50% in the fourth year, and 25% in the fifth year.

For employers with 51 to 100 employees, the credit is slightly reduced. In addition, for employers with up to 50 employees, the SECURE 2.0 Act includes a tax credit that covers 100% of the administrative costs, up to $5,000.

What is a 401(k) Employer Match?

An employer match, also known as a 401(k) employer contribution, is a dollar amount from the employer that typically matches the employee’s contribution up to a maximum amount.

401(k) Employer Match Example

Amazing Snorkel Adventures, LLC, matches 100% of employee contributions up to 5% of the employee’s salary. Maria earns $1,000 per week and contributes 5% of her salary. So, Maria has $50 per week automatically routed from her paycheck to her 401(k) plan.

Amazing Snorkel Adventures makes a matching contribution of $50 per week. Maria is, therefore, seeing $100 per week entering into her 401(k).

Why Offer a Matching Contribution?

In today’s war for talent, your business needs every edge it can get when recruiting and retaining employees. What’s more, the new SECURE 2.0 Act is incentivizing small businesses to make matching contributions by offering tax credits.

It’s common to see 401(k) matches of 50% to 100% of employee contributions up to a set percentage of the employee’s salary, such as 6%. Weigh that cost (which is in part tax-deductible) versus the expense you will undoubtedly face from employees leaving your company for a new job that offers a 401(k) match. The Society for Human Resource Management (SHRM) reports it can cost up to 75% of an employee’s salary to replace that person who left.

Remember, your business will now need to recruit, interview, and train the new employee. There’s also the loss of institutional knowledge and potential demoralization of your team when coworkers leave.

Communicate Your 401(k) Plan to Attract Job Applicants

Be sure potential job applicants know about your 401(k) plan!

1 – List your 401(k) on job board postings

Here at Asure, when we have a job opening, we list our 401(k) in our job posting. Your business should do the same when posting to job boards and wherever else you advertise your open positions.

Our 2023 HR Survey of over 2,000 small businesses uncovered that 82% of Fast Growth companies use Job Boards to post new openings compared to just 55% of businesses that experienced a down year.

You can download your complimentary copy of our survey results and analysis here.

2 – Promote the 401(k) plan as part of your employee referral program

Encourage your employees to promote the retirement plan on their personal and professional social media networks.

An employee referral program can be a low-cost and highly effective recruitment tool.  Our survey data shows that 73% of Fast Growth companies have a formal employee referral program to attract new talent. Only 45% of Down Year companies have a formal referral program.

3 – Create marketing materials for your 401(k)

Provide written and online materials detailing your plan’s key features and advantages. Distribute these materials at trade shows, job fairs, and during individual job interviews.

4 – Create a retirement information center on your careers website and intranet

Offer comprehensive information and frequently asked questions (FAQs) to help employees and potential new employees understand how the 401(k) can help them retire more comfortably. Remember, retaining your employees saves you money and protects your culture.

5 – Show, rather than tell

Illustrate the long-term financial benefits of 401(k) savings, emphasizing how pre-tax contributions reduce take-home pay and tax liabilities. Offer a retirement calculator so folks can see their retirement possibilities.

6 – Explain how easy it is to take advantage of the 401(k) plan

User-friendly retirement plan administration software is a must. When you partner with a payroll provider such as Asure with an integrated 401(k) solution, it’s incredibly simple for your employees to participate.

7 – Keep the lines of communication open

Maintain ongoing communication efforts. Provide regular updates on plan benefits, enhancements, and annual contribution changes to keep employees engaged. Offer monthly updates showcasing savings progress and growth, and make sure there’s someone available to answer questions about the plan and retirement savings in general.

As an added benefit, with the SECURE ACT 2.0, employers can match their employee’s qualified student loan payments to their retirement plan.

How to Offer a 401(k) Plan

The easiest way to offer a 401(k) plan to your employees is to partner with a payroll provider that offers 401(k) plans integrated into its payroll and HR. This allows you to focus on your business while your payroll provider handles the administration, employee enrollment, and contributions.

Asure offers a seamless, efficient, and user-friendly retirement savings solution. We’ve aligned our 401(k) with the Secure Act 2.0, which offers significant tax incentives for small businesses to establish new retirement plans. Learn more about partnering with Asure to provide a seamless 401(k) solution for your employees and future employees.