Employers use a myriad of incentives to attract and retain top talent. Some have elaborate break rooms outfitted with ping pong tables and nap pods. Others offer free-lunch-Fridays or sponsor yoga classes. Many of these ideas are clever and cute, but these employee perks are no match for the long-term benefit of a 401(k) retirement plan.

The Basics of a 401(k)

A 401(k) plan lets employees put money into a tax-advantaged savings account, which they can then use to live off when they decide to stop working. You can begin taking penalty-free withdrawals as early as age 59 ½ or hold off on those required minimum distributions until 70 ½. If you fall upon hard times, it’s possible to borrow from your 401(k) like a low-interest loan as a last resort to bankruptcy or foreclosure.

Most 401(k) deductions can be set up to automatically deduct from a paycheck, so that money is out of sight, out of mind, which makes it much easier to save.

As you work to accrue your savings, your money will work hard for you – compounding in interest over the years and growing exponentially as your interest earns interest. Unlike a traditional savings account, the money put into a 401(k) does not count as taxable income until you begin taking it out later, so you save on your tax bill every year you contribute. Certain types of 401(k) (Roth) let you pay your taxes upfront if you prefer, so you can maximize the amount of money you have in your tax-free golden years.

As an added bonus, many employers are willing to match what employees invest in their 401(k) accounts. Why? Because the employer does not have to pay taxes on the contributed match. For the employee, this is literally free money. So, it’s a win-win for everybody.

Why 401(k) Retirement Planning is Important for Employees

For most working people, retirement income comes from any one or combination of the following sources: your social security benefits, any employer-provided pension, and your personal savings. Yet, with the future of Social Security uncertain, personal savings have become increasingly important. While there are other investment vehicles like IRAs, health savings accounts, and taxable brokerage accounts, 401(k) retirement planning continues to be the most popular option for several reasons.

  • Matching contributions – The employer match is FREE MONEY for employees who receive it. The more workers become aware of this, the more popular this option gets.
  • Tax-Deferred Earnings – At tax-time, all that money put into the 401(k) (and all that money contributed by your employer) isn’t counted in your annual household income. That means you owe less to the IRS. For most people, income is lower at retirement, so they pay a smaller amount of tax on their money.
  • Loans – If you fall under severe economic hardship and need an instant influx of cash to cover a sudden divorce, medical emergency, tuition bill, or new home, you can take out a loan against your 401(k). You can take five years to pay yourself back without incurring income tax liability. Any interest goes directly back into your 401(k), rather than into a lender’s coffers.
  • Big Returns – Returns on investments are another form of free money. Unlike loaning the money to the bank as you do with your savings account, you get to choose where your money gets invested. Investment options include money market funds, guaranteed investment contracts, stocks, bonds, and mutual funds. There are low-risk vehicles such as certificates of deposit or U.S. Treasury bonds, though the returns are lower. Stocks and bonds have a higher risk, but they can also earn you much more money over time. Many savers dabble in higher-risk investments early on and become more conservative as they inch closer to retirement.
  • Compounded Savings – The sooner you start saving, the faster your retirement account will grow.

Why 401(k) Retirement Planning is Important for Employers

One might wonder what’s in it for employers considering 401(k) retirement planning. Finding and training new employees is not only expensive, but it can also be bad for company morale when there is high turnover; not to mention the negative impact on the company’s effort to foster consistent relationships with customers and clients. Offering a 401(k) match is one way businesses are weathering the storm. While a 401(k) match is an added expense, it is an investment worth making.

  • Employee attraction and retention – In today’s competitive workforce, a 401(k) plan is a significant deciding factor for candidates considering a job offer. Further, 75% of new hires cite the 401(k) plan and employer match as a compelling reason to remain at their current job. Structuring a 401(k) plan to vest after, say, five years has proven to be a consistent way to attract and retain quality employees.
  • Tax Benefits – Matching contributions are deductible on your federal income tax return. Not only that, but you can also deduct up to 25% of the compensation provided to all eligible employees participating in the plan. The SECURE Act, passed in December 2019, offers companies a tax credit up to $15,000/year for the first three years of a new 401(k) plan, as well as an additional credit of $500/year for three years when employees are automatically enrolled.
  • Competition – Most companies offer some type of matching contribution. The average amount is 2.7% of an employee’s pay.
  • Employee Satisfaction – Stress has a significant impact on employee performance, productivity, and commitment. A 401(k) combined with financial wellness tools can go a long way toward reducing such stress levels and boosting employee mental health and wellbeing.
  • Your Future – Many small business owners believe business profits will help them live comfortably in retirement. Still, there’s no guarantee that business will always remain as steady or profitable as it is today. Setting aside money in a tax-advantaged 401(k) ensures you’ll have the resources you need.

401(k) Plans For Employers Are More Affordable Than You Think!

There are many myths surrounding 401(k) plans for employers that lead small businesses to “avoid the hassle.” The truth is, companies like Ubiquity focus exclusively on 401(k) administration for small businesses, so it’s quite simple to get started.

Our 401(k) plan options for employers include all setup and administration, facilitation of contributions, employer support, a suite of financial wellness tools for employees, and loan preparation if necessary. For an additional fee, we can take care of tax filing and compliance support, too. For an industry-low flat fee, we also run the administration of the plan. With our team at the helm, you have the time and freedom to work with your chosen broker, who can oversee your investments.

We offer four tiers of plans, ranging from $19 to $257 per month depending on the level of service and support you want — with no additional fees.

Ubiquity offers 401(k) retirement planning made simple. Click here to get started.

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