Dispelling the myths that keep you from offering this valuable benefit.
Business owners recognize the importance of offering a 401(k) plan to attract and retain good employees. In a national survey conducted by Spark 401k, 94% of small business owners agreed that offering a 401(k) plan drove recruitment and retention. However, the U.S. Government Accountability Office reports only 10% of businesses with 10-100 employees offer them.
Why the discrepancy?
We did a little digging. Study after study shows that small business owners hold several beliefs about 401(k) plans that are simply not true. This is good news! Let’s dispel those myths with facts that will have you reconsidering this game-changing benefit. Not only will it impact your recruiting and retention strategy, but it will also prove beneficial in your own retirement savings.
Myth #1: I do not have enough employees to host a 401(k) plan.
Fact: Spark 401k’s study also revealed that 59% of small business owners that do not currently provide a 401(k) plan believe they are too small to do so. False! Thanks to the Economic Growth and Tax Relief Reconciliation Act of 2001, businesses of any size have options. Self-employed entrepreneurs even have solo plans available to them.
Myth #2: I cannot afford to match my employees’ contributions so I should not host a plan.
Fact: Just because you offer a retirement savings plan does not mean that you have to provide a match. According to the Society for Human Resource Management, approximately 42% of companies do match, and the most common match today is anywhere from 50-100% on the first 6% of employee deferrals. Regardless of the current trends, you are entitled to match based on your company’s budget. This includes opting not to match at all.
Before striking the notion of matching at all, you should educate yourself on the financial benefits. There are tax deduction benefits that should be discussed with your 401(k) administrator or your accountant.
Myth #3: Administration costs are too high.
Fact: It is true that 401(k) plans have fees associated with administering them. However, there are several ways these charges can be absorbed. Some employers opt to pay for all of the costs. Others chose to disburse them out of the plan assets (essentially divvying up the charge to participating employees). There is also an option to share these costs between employer and participating employees.
Better yet, when your small business partners with a PEO like Tandem HR, the costs are low for both the employer and the employee.
“One huge advantage to partnering with Tandem HR is participating in the multiple employer 401(k) plan,” says Greg Foss, Senior Director of Operations at the Chicago-based CPEO. “Owners take advantage of economies of scale in this pooled plan with low costs and eliminate the administrative work. It’s a win-win.”
Did you know that 47% of small business owners are saving less than 10% of their income for retirement? An astonishing 25% of those are saving nothing at all! In addition to attracting and retaining quality employees and taking advantage of the tax benefits, you can reap the benefits in your personal retirement planning.
If you are interested in learning more about the benefits of offering a 401(k) plan, contact Greg Foss today for a free consultation at 630.371.6131 or firstname.lastname@example.org. Tandem HR is an IRS certified PEO partnering with hundreds of small and mid-sized businesses in the Chicago and tristate area to provide customized, high-touch HR solutions. Learn more at www.TandemHR.com.