Working for a small business offers many great advantages. With less layers of management, employees are often empowered to make decisions. Smaller operations are inherently structured to be more agile than large corporations and built to pursue exciting market opportunities. And oftentimes they offer creative company perks, such as being early adopters to the popular work-from-home trend. But financial experts agree – small businesses should emulate their larger counterparts when it comes to offering retirement benefits. Specifically, small business owners need to ensure a 401(k) plan is part of their benefits package. Here are the reasons why it’s smart (and easy) to start a 401(k) for your business.
Why it’s smart to start a 401(k) for your business
Happy employees are productive employees. Starting a 401(k) offers long-term rewards for both the employee and the employer, and every small business should use a 401(k) plan as a recruitment and retention tool. Small businesses have the opportunity to emulate the same characteristics the Fortune 100 Best Companies to Work For used to increase revenues a whopping 22 percent, including fair pay and great benefits, ensuring valuable human resources stay in-house.
And when heavily reliant on key employees, recruitment and retention is paramount. According to a survey by CNBC, most small businesses only have four-or-less employees. In fact, only 22 percent of small businesses have 10 employees or more. A common myth among small business owners is that some businesses are just too small to offer a 401(k). But even owner-only businesses can have a solo 401(k) for the one employee.
It’s also smart because it’s an economical perk. Many small business owners avoid offering a 401(k) plan based on the perceived costs. However, the costs associated with set up and management is probably less than anticipated, and the rewards associated with potential tax benefits and higher employee engagement far outweigh the costs.
Many small businesses are reluctant to offer a 401(k) because of the financial burden associated with matching employee contributions. But employers can reap all of these advantages of offering a 401(k) without offering a match. The financial incentive to invest in a 401(k) is smart, with or without an employer match. And committing to a match is not etched in stone for the life of the business. Employers can start by offering a 401(k) without a match, and potentially add a percentage match in the future.
Easy steps to start a 401(k) for your business
Setting up a 401(k) plan for your business can be boiled down into four steps. According to the Internal Revenue Service (IRS), the basic actions to establishing a 401(k) plan include:
- Creating a written plan
- Arranging a trust fund for the plan’s assets
- Developing a record-keeping system
- Introducing the plan to employees
While concise, these steps may be intimidating to a business owner who is already juggling many responsibilities. A trusted and experienced financial advisor is a valuable resource to expedite the process and ensure set up and maintenance will maximize value for your specific business.
Still hesitant? Start slowly and build momentum.
Without a doubt, it’s time for your business to start a 401(k). But if an employer is on the fence regarding whether to match a percentage of employee contributions, it’s smart to start with a low match or no match. Simply introducing a 401(k) plan is a great benefit in itself. There are advantages to gaining momentum incrementally over time – such as introducing a 401(k) plan and then introducing a match at a future date, and gradually increasing the match percentage over time. And employers need not risk overreaching at launch with the potential for the removal or decrease of an employer match amount.
Ready to get started? Despite all the upside, the four basic actions necessary to establish a 401(k) may be intimidating to a business owner who is already juggling many responsibilities. A trusted and experienced financial advisor is a valuable resource to expedite the process and ensure set up and maintenance is poised to help maximize value for your specific business. Wickham Financial & Insurance Services works closely with business owners to address their financial and business needs, including the establishment of a 401(k) program. Contact our helpful and experienced financial advisors today.
Any information provided has been prepared from sources believed to be reliable but is not guaranteed, does not represent all available data necessary for making investment decisions and is for informational purposes only.