401(k) Benefits for Small Business

As a small business owner, you can help improve the financial future of your employees by providing 401(k) retirement benefits and leveraging the plan as an effective tool for attracting and retaining industry talent, while also gaining business advantages.

Small to mid-sized businesses are the lifeblood of the U.S. economy – employing nearly half of the American workforce.² For years, small business owners have recognized that offering a retirement plan can help their business and employees build for the future, but available options seemed costly and cumbersome to administer.

That’s no longer the case. In fact, offering a 401(k) retirement plan can provide a host of opportunities for business owners and their workforce while helping to level the playing field in a competitive talent landscape. The advantages can be substantial, and the business case for why you should consider offering a retirement plan has never been stronger.

Implement a Growth-Focused Talent Strategy

In today’s marketplace, competition for the best candidates is at an all-time high. Top talent increasingly expects employers to offer retirement benefits as part of their compensation package, regardless of business size. Moreover, businesses without the benefit risk being passed over by top-tier candidates while exposing current employees – and their company – to competitive employment offers.

A retirement plan can help focus your recruitment and retention efforts, providing a highly desired benefit while demonstrating your commitment to your employees’ long-term well-being. Studies have shown that of employers offering 401(k) plans, 94% said retirement plans helped drive recruitment.³

Improve Your Bottom Line

It’s hard to quantify the value of a high-quality workforce, but the cost of losing talent is measurable – from one-half to two times an employee’s annual salary by some estimates.⁷ Add to that the time and effort associated with finding and training a replacement, which can take one to two years to bring the new hire fully into the fold, and the costs become substantial.⁸

Offering a retirement savings plan can play a central role in retaining employees, inspiring loyalty and ensuring they feel valued and engaged in the workplace. When employees consider themselves invested in a company, they can be more focused on contributing to its success.

Trends have shown a steady increase in the amount of money Americans invest in their 401(k) plans: As of June 2021, an estimated $7.3 trillion were held in 401(k) plans, compared to $3.1 trillion in 2011.⁹ When plans are available, 43% of Americans take advantage of them.¹⁰ With the right plan and support, offering retirement benefits can give your business the types of competitive advantages that help build long-term and substantive growth.

Business Tax Incentives

The business advantages for 401(k) retirement benefits extend far beyond the workforce or talent strategy. With growing concerns around the American retirement savings gap, the federal government has implemented financial incentives specifically for small businesses to help offset the costs of offering a retirement plan. Most noteworthy is the SECURE Act, signed into law in late 2019, which offers several significant advantages, such as:

• A potential tenfold increase in start-up tax credits – from $500 to $5,000 – for businesses with one to 100 employees.¹²
• Additional tax credits for specific plan features, such as automatic enrollment.¹³
• Setup fees and other administrative expenses are tax-deductible and, with specific plans, can even lower your tax liability.¹⁴

It’s also important to note that these benefits are subject to further enhancements through the implementation of additional legislation over the next few years. The net result is that the federal government has recognized the importance of making retirement plan sponsorship accessible for ALL businesses. For small businesses, workplace retirement solutions have never been more accessible or affordable, creating strong advantages for talent, growth, and bottom lines.

For your business and your employees, a retirement plan is an opportunity to start building for the future today. Connect with a Morgan Stanley Financial Advisor to learn more about both the costs and benefits of setting up a retirement plan for small to mid-sized businesses. You should consult with your legal and tax advisor when considering a retirement plan for your business.