If you are a SME owner, it can seem nearly impossible to provide retirement benefits to your employees. But it can secure their financial future – and that of your business, too.
While only 22% of small and medium-sized businesses offer retirement benefits, compared to 65% for large organizations, the financial incentives to do so can pay for themselves. Research of Gusto people management platform found that workers are 40% less likely to leave in their first year when offered retirement benefits, saving employers tens of thousands of dollars in turnover costs.
“Business owners can’t afford not to offer these benefits,” says Luke Pardue, economist at Gusto. “By offering a 401(k), you can see returns of over $100,000 in reduced employee turnover costs. If we can increase participation, we can see a lot of return both in terms of employee satisfaction. employees and financial security.”
Read more: Small businesses turn to employee benefits to retain talent
Small businesses make up nearly 60% of businesses in the United States, employing more than 12 million people, according to the US Small Business Administration Office of Advocacy. And with quite difficult retirement savingsit is imperative that employers and employees understand the importance of planning for their financial future.
“Retirement savings is one of those things that people don’t value until they realize they need it,” says Steve Abbott, public policy manager at Gusto. “It’s indicative of the fact that employers don’t necessarily think they have to offer it to be competitive.”
Abbott says employers aren’t always aware that their employees appreciate these financial benefits and focus more on providing much-needed perks, like health care coverage. While important, the pandemic has highlighted the need for a financial safety net — and employers and even state and federal governments are getting more invested in making sure that happens.
Already, 14 states require employers to enroll their employees in a state-sponsored retirement plan, which is typically a Roth IRA, or offer a plan in the private market. Additionally, the yet-to-be-enacted SECURE Act 2.0 would offer a “Starter 401(k)” program, which would limit contributions to $6,000 with no ability to match with the employer.
Read more: 5 Ways ‘SECURE 2.0’ Legislation Could Change Retirement Savings
These plans are beneficial in encouraging employees to save for their retirement, and the incentives for employers are also important: currently, companies with less than 50 employees benefit from a tax credit to cover up to 50% of the costs administration of the pension plan. If the SECURE Act 2.0 is passed, 100% of administrative costs would be covered and employers with up to 100 employees would be eligible.
“As an employer, you’re missing out on all the tax benefits to yourself,” Abbott says. “Why wait for a requirement deadline when you can anticipate it and it benefits you in so many ways.”
Pardue says the offer of a 401(k) or other retirement benefit can now be a big differentiator as employees continue to change jobs in the middle of the big resignation.
“The offer margin now versus later is the difference between 401(k) plans being a differentiator for potential and current employees, versus an expectation,” Pardue said. “At the end of the day, when more and more states require 401(k) plans, that’s not going to be a differentiator for you. A year later, you won’t be able to make that claim.”
Whether a 401(k) plan is a recruitment or retention strategy, or simply the right thing to do, the reality is that employees are prioritizing their financial security more than ever. Employers will need to have the resources at their fingertips.
“Everyone’s personal and financial life has been turned upside down [during COVID]and as a result of that, many employees place more importance on their financial security,” says Abbott. “We are focusing more on financial health and well-being, and employers need to take a holistic view of that. ”