Why Implementing a 401k Plan in the Office Can Boost Morale
There are myriad reasons why businesses of any size should consider implementing a 401k plan. Not only does it benefit the employees, but it can also benefit the business owner in terms of reduced payroll taxes and perhaps even tax credits. However, the biggest benefit that business 401k provides is an increase in office morale, which can improve your overall productivity and increase your bottom line.
How 401k Works
First and foremost, no matter if you are a partnership, a corporation, self-employed, or even a sole proprietorship, you can establish a business 401k plan. This is a federally insured retirement savings program that allows contributions from an employer, employees, or both. What’s more, as an employer, you can set up your own vesting schedule, which basically determines how much of your employees’ contributions you will match, and up to how much. Although a business owner is not necessarily required to contribute to 401k plans, sometimes an obligation may arise, particularly after non-discrimination testing shows a plan is “top heavy”.
How it Benefits Employees
When you provide 401k to your employees, every single contribution they make is withheld before any taxes are applied, and they are 100% vested immediately in their own contributions. Although there are penalties for employees who choose to withdraw funds from their business 401k accounts prior to retirement or before age 55, those who choose to retire during the calendar year in which they turn 55 (or older) are not subject to these penalties. Furthermore, some exceptions can be made for loans and hardship withdrawals based on 401k contributions.
Why You Should Contribute
Despite the fact that you are not legally required to contribute to a 401k plan as an employer, you should. For every single employee that contributes to 401k plans, their taxable income is reduced slightly. This means that your overall payroll taxes will likely come down, thus offsetting any contributions you make. For instance, you might opt to match the first 3% of the employees’ contributions 100%, and the next 1% to 3% as much as 50%. You can set this vesting schedule any way you would like.
How it Boosts Morale
In today’s day and age, many employees feel like slaves for companies that have very little appreciation for them. Even those who have a great education and work hard can sometimes barely eke out a living due to personal circumstance. When you take the time to implement a 401k program into your business, you are essentially showing your employees that you care about their long-term financial status and that you want to help them succeed. In short, to your employees, it is like they are getting a raise – even if they will not see those funds for another 20, 30, or even 40 years.
A business 401k plan is a must have for any business of any size. Not only is it an in-demand benefit that talented employees expect to see, but it helps those same employees feel appreciated. An appreciated employee is a productive employee, and that is just better for business.