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Your employees care about their 401(k) benefits.

It's easy to look at 401(k) benefits as something that only large, established companies can offer. After all, aren't they just another cost that will weigh your small business down? Why make the leap into this complicated new expense if your employees don't seem to notice its absence? As it turns out, offering this employee benefit can be beneficial for your company's finances — as well as retention. Set up doesn't have to be a time-consuming headache, either.

Why You Should Offer Employees a Retirement Plan

Strictly speaking, no, there is no law requiring your company to offer retirement benefits. However, if you look at what current and potential employees are looking for, and what will keep them at your company, retirement benefits can be quite important.

According to Glassdoor, the availability of a 401(k) plan ranks second in importance out of the top 50 benefits employees desire to have, tying with paid time off and pension plans, and behind health insurance coverage. To add further context to how important this benefit is to employees, 401(k) benefits actually outrank maternity and paternity leave, sick days and paid holidays.

401(k) Benefits Can Help Your Business During Tax Season

It's important to note there are significant advantages for your company around tax time if you offer 401(k) plans to employees. If you have less than 100 employees and paid each of them $5,000 or more the preceding year (but at least one employee who was non-highly compensated), you may be eligible for a 50 percent credit on the startup costs of your retirement program, which includes fees for set up and the investment you make in educating your staff about their new benefit, according to the IRS.

According to the IRS, once your benefit plan is set up, all contributions are deductible and elective deferrals and investment gains are not taxed until distribution. This means that every dollar you choose to contribute to your employee's funds are tax deductible. The tax deduction is true for both sides, and it will also lower each person's taxable income so you'll have no trouble with your participation rate in this benefit.

How to Get Set up Quickly

When you're ready to start putting together your plan, you may feel overwhelmed. But there are many resources that can help including your financial partner and government agencies. The first step in offering this benefit is to decide on a financial institution as your provider. While you can host the plan yourself, it's wise to only consider doing so if you already have a robust financial team. Otherwise, pick a bank, mutual fund provider or insurance company as your provider.

Choose a Provider You Trust

It's important to pick a provider that's well established. Many of your employees will keep their account where it is, even after they've left the company. If you already work with a major financial provider, it may be a good idea to use them because you already trust the company and can keep all your financials together. Picking a great provider that you have a relationship with also means you'll have a team of experts to answer any questions during the setup phase. You'll need to make several decisions, such as what type of plan you'll be offering. Having a representative you trust on hand can make a huge difference in your experience and the time required to complete the process.

To expedite the 401(k) benefits process further, invest in the education of your employees. This will head off problems before they start, such as missed enrollment or payments and record keeping issues. A provider will also be able to help you with this.

Offering retirement benefits to your employees may seem like something only larger companies can afford, but that's largely a myth. There are actually many benefits to your business, both in terms of taxes and employee recruitment and retention.


This material is presented for informational purposes only and should not be construed as individual tax or financial advice. KeyBank does not provide legal advice.

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