The Importance of Offering Employee Matching Contributions in Your Small Business 401(k) Plan
Author: Siân Killingsworth / 17 Feb 2023 / Small Business 401k
As a small business owner, offering a 401(k) plan can be a valuable tool for attracting and retaining top talent. But how can you make it even more enticing for your employees? By offering employee matching contributions, you incentivize your employees to participate in the plan, increase their retirement savings, and boost their loyalty to your business.
Benefits for you
Offering an employer-sponsored 401(k) match can also provide tax benefits for your small business. Employer contributions to a 401(k) plan are tax-deductible, which means they’ll reduce your taxable income and lower your business’s tax bill.
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Boosts employee morale and loyalty
Offering a matching contribution can also boost employee morale and loyalty. When employees feel that their employer is invested in their financial future, they’re more likely to feel valued and loyal to the company. This can lead to increased productivity, higher job satisfaction, and a lower turnover rate.
Encourages employee participation
According to a survey1 by Charles Schwab, 94% of employees would participate in a 401(k) plan if their employer offered a matching contribution. (Only 68% of employees said they would participate in a plan without a match.) Offering a match is an easy way to encourage your employees to start saving for retirement – and show you care by investing in their futures.
Increases employee retirement savings
With their own 401(k) contributions and a match from you, employees can save more money than they would be able to on their own. Over time, the additional savings will compound and grow, leading to a larger nest egg for retirement.
Helps attract and retain top talent
Offering employee matching contributions can be a competitive advantage when it comes to attracting and retaining top talent. According to a survey by the Transamerica Center for Retirement Studies, 66% of workers said a retirement plan is a major factor in their decision to accept a job, and 83% said it’s an important benefit that keeps them at their job.
By offering a 401(k) plan with matching contributions, you’re demonstrating to potential and current employees that you value their long-term financial security and are willing to invest in their future.
Considerations for small business owners
While matching contributions can greatly benefit both your small business and your employees, there is also the question of how much to contribute.
Consider the cost of matching contributions
Depending on the matching contribution structure and vesting schedule, offering a match can be costly for your small business. It’s important to consider the financial impact and make sure that offering a match aligns with your overall business goals.
Plan administration and compliance
Offering a 401(k) plan with matching contributions can also require additional administration and compliance work. You may need to work with your provider to ensure your plan is set up correctly and stays in compliance with IRS regulations.
Choose the right 401(k) plan provider
When selecting a 401(k) plan provider, it’s important to consider their fees, investment options, and customer service. A provider with low fees and a wide range of investment options can help your employees save more money for retirement (and provide better value to your business).
Communicate with your employees
Like the benefits of your 401(k) plan with matching contributions? Shout them from the rooftops – or find another way to tell your employees. Make sure they understand how the plan works, how much they can contribute, and how the match can help them save more for retirement. Promoting the plan and providing education and resources can help your employees make informed decisions about their retirement savings.
Ubiquity is not a registered investment advisor and no portion of the material herein should be construed as legal or tax advice. Please consult with your financial planner, attorney and/or tax advisor for advice.