The Role of 401(k) Plans in Supporting Financial Wellness 

Author: Karen Benewith, QKA, QPFC, AIF® / Reviewer: Callie Adams Farnsworth, QKA, CAFCA
16 Mar 2023 / 401(k) Plan Information

Have you seen the price of eggs recently? If you have (spoiler: it’s going up), you’ll understand why financial wellness is a hot topic. And as a small business owner, you’re likely responsible for not just your own, but that of your employees as well. So how can you support your staff through inflation and other financial stressors? A 401(k) plan can help.

What is a 401(k) plan?

A 401(k) plan is a great way for you (and your employees) to save for retirement. It allows employees and employers alike to contribute pre-tax and/or Roth after-tax income towards an investment portfolio tailored specifically toward the employee’s risk tolerance and future. Contributions are built over time, allowing savings in stocks, bonds or mutual funds slowly accumulate without taxation of earnings until withdrawn, providing peace of mind as you approach your golden years.

Why are 401(k) plans important for small businesses?

If you’ve found it tough to retain employees because of a lack of resources, you’re not alone. Many small businesses often find themselves limited in what benefits they can offer. However, one smart investment is offering a 401(k) plan for team members–after all, it’s an economically savvy solution that helps your small business stand out, boosts morale, and can even help you save on taxes.

How do 401(k) plans support financial wellness?

401(k) plans can be a powerful tool for small business employees to secure their financial future. With consistent contributions and the support of compounding interest, you gain greater control over your retirement savings goals while also smoothing cash flow via payroll deductions. This helps to build an invaluable asset that helps you stay on track with preparing financially for later life.

What are the advantages of offering a 401(k) plan?

A 401(k) plan can provide several advantages for small businesses. First, it can help attract and retain talented employees. Second, 401(k) plans are tax-advantaged, meaning you and your employees can both save on taxes (more on that here). Finally, 401(k) plans are customizable, which means that your small business can tailor its plans to meet the needs of their employees.

How can small businesses implement a 401(k) plan?

Implementing a 401(k) plan can be daunting, but it doesn’t have to be. You can work with a 401(k) provider (or financial advisor) to help set up your small business’s 401(k) plan. One of the most critical steps to ensuring its success? Educating employees about the benefits and providing them with the necessary resources to make informed investment decisions.

What are the risks associated with 401(k) plans?

Like any investment, 401(k) plans carry some degree of risk. The value of the funds in the account can go up or down depending on market conditions. However, the long-term benefits of retirement savings through a 401(k) plan typically outweigh the short-term risks.

How can small businesses measure the success of their 401(k) plan?

Measuring the success of a 401(k) plan can be done in several ways, including:

• Tracking the participation rate
• Tracking the average contribution rate
• Tracking the plan’s investment performance

But don’t just rely on metrics! You can also conduct employee surveys to get real-time feedback on how the plan is helping your small business’s employees achieve their retirement goals.

How can small businesses ensure their 401(k) plan is competitive?

To ensure your small business 401(k) plan remains competitive, you should regularly review and update the plan, including review of the plan’s fees, investment options, and features. Bonus points if you benchmark your plan against similar ones in your industry to ensure you’re offering competitive benefits. And as always, talk to a professional. Find out which plan provider might be right for you.

 

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.