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Your employees will appreciate a robust retirement plan – and your business will benefit, too.
If you’re considering offering employee benefits, there are few perks workers desire more than a 401(k) retirement plan. As such, many employers use robust retirement plan options to attract and retain quality employees. We’ll explain why a 401(k) plan is a popular choice for business owners and employees and explain how to set one up with a top provider.
A 401(k) plan is an employer-sponsored benefit that allows employees to save money for retirement. According to the IRS, a 401(k) is a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts. Employees typically have several choices for the types of investments the money is put into.
These retirement plans are straightforward:
Eliza Guilbault, vice president of workplace consulting thought leadership and commercialization at Fidelity, says most workers are responsible for funding their own retirement in the current workplace environment. “We are shifting from an employer-funded pension plan to a defined contribution plan landscape,” Guilbault explained. “A 401(k) is a great way to save for the future.”
While employers sponsor these plans, the investment money belongs to the employees. The money they contribute to their account is theirs to take if and when they move on to a new job.
To boost participation, employers sometimes contribute to their employees’ 401(k) accounts based on each employee’s contribution. They may entirely or partially match an employee’s contribution up to a specific percentage. For example, if an employee contributes 4 percent of their paycheck, their employer might match that contribution, essentially doubling the employee’s contribution.
Employers may implement a vesting period that dictates how long an employee must stay with the organization before the matching contributions fully belong to them. Implementing a vesting schedule helps incentivize employees to stay with the company.
As of 2024, an employee can contribute up to $23,000 annually. If a business owner matches the investment, the contribution amount cannot exceed $69,000 per year. Those age 50 and older can contribute an additional $7,500.
There are a few types of 401(k) plans, including the following popular ones:
While offering a 401(k) plan allows employees to save pretax dollars for retirement, it also brings significant benefits to a business, including the following:
While a 401(k) plan is a benefit traditionally offered by larger organizations, Fidelity’s Guilbault says small businesses should strongly consider offering one too. “Many [retirement plan] providers have solutions that are great for small businesses,” Guilbault noted. “Fidelity works with thousands of small businesses.”
To set up a 401(k) plan for your business, take the following steps:
Numerous dedicated retirement plan providers exist. Additionally, the best online payroll services and the best professional employer organizations often provide 401(k) plan management in addition to their core services.
For example, Gusto is a multifaceted platform that offers payroll, employee benefits and human resource management software. Its payroll services can easily and accurately accommodate 401(k) contributions and matches. Read our review of Gusto HR software and our Gusto payroll software review to learn more.
States have various rules and regulations about retirement plans. Some states even require employer-sponsored retirement plans. For example, in California, if your business has even one employee (who isn’t the owner), you must offer a retirement plan that meets specific criteria. Businesses can register with the state’s CalSavers program to access retirement plans or create their own employee retirement plan.
Every small business owner should research their state’s rules.
401(k) plans have various features and functions, so business owners must make some decisions. Consider whether you want any of the following:
For small businesses, the costs of offering a 401(k) retirement plan can vary greatly.
While providing a 401(k) plan incurs costs, some expenses may be offset by specific tax deductions for which small businesses with fewer than 100 employees may be eligible. For example, you may be able to deduct administrative fees from your business taxes. You may also be able to take advantage of tax credits.
A 401(k) is not the only option for small businesses looking to establish a retirement plan for their employees. Business owners should also consider SEP and SIMPLE IRA plans as potential alternatives.
The best business employee retirement plans will help you provide your employees with competitive benefits at a price you can afford. The following options are excellent choices for small businesses getting started with retirement plans:
Human Interest is an affordable provider with minimal investment fees and low monthly employer and employee fees. Its flexible retirement plans can be customized to address an employer’s specific needs. Read our Human Interest review to learn about its plan administration functions, employee onboarding features, and top-notch customer service.
ADP is a popular payroll provider that also offers 401(k) account administration. Businesses can integrate with ADP payroll to make processing contributions automatic and easy. Employers will also appreciate ADP’s mobile app, which helps employees easily enroll in a plan and check their funds’ performance. Our review of ADP explains this platform’s unique features, including a dedicated manager to help you set up your plan.
Paychex offers traditional 401(k) plans, owner-only 401(k) plans, solo 401(k) plans and SIMPLE IRAs. Business owners can customize their plans based on their company’s needs. If you use Paychex for payroll and other HR services, layering in retirement savings is seamless. Our Paychex Retirement Services review highlights the platform’s self-serve interface, which lets employees log in to monitor their balances and manage their contributions.
USA 401k keeps it simple with two choices: a safe harbor 401(k) and a traditional 401(k). Information about each option is readily available on the company’s website, making it easy for a business owner to decide what they need. We like that, during enrollment, employees can speak to a licensed representative for individualized guidance. Our USA 401k review explains how the platform offers fiduciary services for its more than 15,000 investment funds and even lets plan participants invest in individual stocks and bonds.
In addition to solo, safe harbor and traditional 401(k) plans, ShareBuilder also offers a tiered profit-sharing 401(k) plan. This plan provides a low-cost retirement planning solution with below-average investment fees of only 1 percent and additional savings as your employees save more money. Our ShareBuilder 401k review explains how employees can choose from five managed portfolios or build their own from ShareBuilder’s low-cost index funds.