The Significance of Offering a 401(k) Plan

Small Business Week celebrates the backbone of the U.S. economy. It’s a moment to recognize the resilience, ingenuity, and hard work of entrepreneurs who dream big and make those dreams a reality. But, as we acknowledge the contributions of America’s entrepreneurs and small business owners, it’s important to shed light on an often-overlooked aspect of small business success: offering employees a 401(k) plan.

Why is it so important for small businesses to provide employees with access to a 401(k) plan?

  • Attract Talent: Offering new employees a competitive benefits package that includes a 401(k) plan can make the difference when it comes to hiring top talent. According to a 2023 401(k) participant survey, 88% of respondents considered a 401(k) a must-have benefit when looking for a new job—second only to health insurance, at 90%.
  • Employee Retention: Retirement plans also foster employee retention and loyalty—71% of employed Americans are more likely to stay with their current employer if offered an employer-sponsored retirement savings plan. A 401(k) plan demonstrates a commitment to employee financial well-being and provides a valuable benefit that can set a small business apart from the competition.
  • Employee Empowerment: A 401(k) plan enables employees to take control of their financial futures. It provides a convenient and tax-advantaged way for employees to save for retirement, with contributions deducted directly from their paychecks. By offering a 401(k) plan, small businesses equip their employees with a powerful tool for long-term financial security, helping them build a nest egg for retirement and achieve their financial goals.
  • Tax-Advantaged Savings: Both employers and employees can benefit from tax advantages associated with 401(k) contributions. Employers may be eligible for tax deductions on their contributions to employee accounts, and those contributions are typically tax-deductible as a business expense. Employees can also benefit from both contributing pre-tax dollars and investing in tax-deferred growth because they won’t pay taxes on the money they invest until they withdraw it in retirement.

So, unlock the potential for growth and success this Small Business Week by setting up a 401(k) plan. With its tax advantages, competitive edge in attracting top talent, and commitment to fostering financial security, it’s an excellent addition to your benefits package–and potentially your bottom line.

SIDEBAR: The Significance of Offering a 401(k) Plan in Light of the Colorado Secure Savings Act and other state-mandated retirement plans

State-mandated retirement plans are when the state establishes an IRA and requires qualifying employers to offer it as an option to their workers. Colorado is one of only 10 states that have such a plan, including California, Connecticut, Illinois, Maine, Maryland, New Jersey, New York, Oregon, and Virginia.

Colorado’s Secure Savings Act aims to provide employees of businesses without retirement plans access to a state-sponsored retirement savings program. While the act provides a valuable option for employees, small businesses can differentiate themselves by proactively offering their own 401(k) plans, demonstrating their commitment to employee financial well-being, and potentially avoiding certain administrative requirements imposed by the state program.

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