As an employer, it’s essential that you constantly offer employees the best pay and benefits you can. It’s how you can compete against other firms for the best talent. It’s how you help people feel rewarded for their hard work.
And, in doing so, you’ll often find that you tend to get more out of your talent. That’s a true win-win scenario.
Why Offer a 401(k) Plan?
Many small business owners feel their companies are too small to qualify for a 401(k) plan, but this is usually untrue. Whether you’re an owner-only business, employing dozens of people, or growing your payroll to include hundreds, any small business can offer a 401(k) plan.
Of those small businesses that do offer 401(k) plans, 94 percent say it helps support their recruitment and retention efforts. It also yields powerful tax advantages.
In today’s employment landscape, a 401(k) is no longer viewed as a luxury. Savvy employees see it as a necessary option. Furthermore, they want to understand the details of the plan you’re offering (like employer matches, investment options, etc.). A failure to offer a plan can limit your ability to attract and hold on to employees.
4 Tips for Employers
As you consider offering a 401(k) plan to your employees, keep the following tips and suggestions in mind:
1. Timing Is Important
There was once a time when businesses had to carefully consider when and how they’d implement 401(k) plans to be as efficient as possible. That’s no longer the case today. Waiting will only cost you.
Above-average benefits attract above-average employees who deliver above-average results. Now is the time to offer a 401(k) plan. It’s as much about building your business as it is about helping your employees save for retirement.
2. Choose the Proper Plan Design
Every plan is designed differently. While you can choose a cookie-cutter option, it’s best to take the time to carefully tailor your plan to your business and employees. Doing so can significantly improve results.
Consider, for example, that one company was able to grow its plan participation rate from 74 percent to 93 percent in a matter of months, simply by switching to auto-enrollment. This is just one lever you can pull; you have the freedom to get creative.
3. Build a Support Staff
There are generally two different kinds of financial advisors who embrace fiduciary responsibility for 401(k) plans. There are Section 3(21) advisors who take on co-responsibility for selecting and managing investments for your company’s plan. They work in tandem with you, though you retain responsibility for making the final decisions. Then, there are Section 3(38) advisors, who take full control of the plan.
If you’re new to 401(k) plans and lack the time or expertise to deal with investment choices, it’s highly recommended that you go with a Section 3(38) advisor. Not only does this save you time, but it also mitigates liability.
You also have to decide whether you want a third-party administrator. A 401(k) plan administrator typically handles responsibilities related to documentation, transaction approvals, compliance monitoring, audit support, discrimination testing, compliance filing, and generation of the annual participant census.
4. Educate Your Employees
Though there are plenty of employer-side perks to offering a 401(k) plan, it should ultimately be designed to help your employees. Here are some ways you can educate employees and help them max out contributions:
- Offer as large a company match as you can — and explain how it works.
- Encourage employees to put bonuses and raises into their 401(k)s.
- Send information home, and include the employee’s spouse so couples are on the same page.
- Share real-life case studies of people who’ve diligently contributed to their 401(k) plans to bring the topic to life.
- Provide as many resources as possible to your employees. The discussion about contributions and plan details should extend far beyond employee onboarding. Set aside time at the beginning of each year to conduct presentations and answer questions.
Set Your Employees Up for Success
As an employer, you have a responsibility to provide your employees with the support they need to thrive, both personally and professionally. While a 401(k) might not be a requirement, it’s something that has the potential to profoundly impact your employees’ future lives.
Set them up for success by selecting and managing a sound plan. It will pay dividends down the road — both literally and figuratively.