Do Your Employees Have Incentive of a 401 (k) Plan?

Business.com / Finances / Last Modified: February 22, 2017

For many small businesses, one of the incentives that can help draw good employees is having a 401 (k) plan which to offer them...

For many small businesses, one of the incentives that can help draw good employees is having a 401 (k) plan which to offer them following their probationary period.

According to a recent report from Plan Adviser, close to 40 percent of small business workers claim they would depart their current employer for one that offers a 401 (k). A recent study from AARP indicates that retirement plans rank among one of the major reasons why workers select their employer.

With a 401 (k) plan, employees can invest for retirement, and in many instances, get a company match (percentages vary) along the way. Among the different 401 (k) plans are the traditional one, a safe harbor plan, and lastly the automatic enrollment option.

Even though the trend in the last 10 years has been for businesses to add to the number of investment options with their 401 (k) plan, a number of companies are changing their original train of thought and decreasing the number of choices, along with streamlining and simplifying their investment options.

If your small business is thinking about setting up a 401 (k) plan for its employees, there are a number of factors to take into consideration.

Among them are:

- Employers are able to receive a tax deduction for those funds contributed to employee accounts; - Funds contributed can accrue through investments in things like bonds, money market funds, mutual funds, savings accounts, stocks and more; - In most cases, the contributions and earnings will not be taxed until the time they are handed out; - In many cases, employees can take their benefits with them and/or transfer them to a differing account when they leave a business. By doing so, the company is then free of responsibility of the plan.

Lastly, there will always be some unintentional gaffes that come with providing 401 (k) plans for one's workers.

Both the U.S. Department of Labor and IRS have available correction programs to assist those sponsoring plans, making it all the more important that employers continuously review their programs to better avoid mistakes.

If your small business is considering instituting a 401 (k) plan in the New Year, get the necessary information to put things in motion.

Photo credit: entmoney.com

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