In 1978, 401(k) plans were created as a supplement to pension plans that were offered to employees. Today, 401(k) plans are how millions of Americans save for retirement.
Regrettably, 53 percent of small businesses do not offer a retirement savings plan. Some think that a retirement plan such as the 401(k) is too hard or too expensive to manage. Other employers believe that they do not have the time or experience to create an independently designed plan.
If you’re working for a company that doesn’t offer the 401(k), you are missing out on many benefits. Your employer is too. So, how do change your employer’s perspective about this highly beneficial plan and actually consider it?
Here are some helpful tips on how to get your employer to add a 401(k) plan:
The 401(k) Program As Retirement Vehicle
The 401(k) as the primary vehicle that most Americans use to save and plan for their retirement is a relatively new concept. CNBC explains that the 401(k) really got kick-started as a means of retirement planning when rule changes allowed for employees to contribute via payroll deductions:
The IRS issued rules that allowed employees to contribute to their 401(k) plans through salary deductions, which jump-started the widespread roll-out of 401(k) plans in the early 1980s.
Allowing employees to add to their retirement savings via automatic deductions from their pay meant that those employees could simply set up the deduction once and then not have to put too much thought into it after that. The money would continue to be added over time, but the employee did not have to concentrate so hard on how they would contribute to the plan.
This “set it and forget it” mentality allowed for many more employees to contribute a lot more towards their retirement. Today, new hires largely expect that most jobs will offer a 401(k) program of some kind. Even low-wage jobs tend to have some kind of offering on this front as they know that it is an enticing benefit to offer to new employees.
One of the dangers of not starting a 401(k) plan is that the competition will scoop up all the talent from the hiring pool, but there are far more dangers than just that.
Explain the Tax Benefits to the Employer
While the 401(k) can help employees prepare for their future, employers should also understand that it presents notable benefits to them as well. For instance, employers get to enjoy various tax benefits for contributing to 401(k) plans, including:
- $15,000 startup costs tax credit
The first tax benefit that your employer can receive is the startup costs tax credit. If your employer is eligible, they may be able to claim a tax credit of up to $5,000 for three years. The tax credit minimizes the amount in taxes an employer may owe on the dollar-for-dollar basis.
If your employer is eligible, they may claim the credit for ordinary and necessary costs to start and administer the 401(k) plan and educate all employees about the retirement plan.
An eligible employer can also add an auto-enrollment feature to their 401(k) plan. With this feature, the employer can claim a tax credit of $500 annually for a three-year taxable period.
- Ongoing 401(k) tax breaks
Employers who have a 401(k) plan in place are allowed to deduct contributions on their company’s federal income tax return to the extent that the contributions don’t exceed certain limitations. For instance, the deduction should not be greater than 20 percent of total compensation paid during the year to participants in the 401(k) plan.
Your employer should note that total compensation includes elective deferrals, but deferrals aren’t counted against the limit. For 2021, the highest amount in compensation that can be taken into account for each employee is $290, 000.
Small companies are always looking for ways to cut costs and maximize profits. If you can inform your employer about the tax benefits they stand to enjoy by starting a retirement plan for their employees, the odds are that they will seriously consider adding a 401(k) plan.
Know Who to Approach
High-performing organizations understand that effective communication is a building block of successful companies. In the traditional setup, the hierarchical model of communication is the most popular organizational chart type, whereby the information flows from the boss on top, managers below, and employees at the bottom, and vice versa.
If your employer has made employee communications a priority, it becomes easy for you to know who to approach whenever you have an issue. For instance, you can approach your manager or an HR representative, if your company has one. Instead of reaching out to a random company executive, it’s wise to approach someone you have already built rapport with.
As you explain why your company needs to add a 401(k) plan, you should keep your audience and impact in mind. The last thing you want is to come off as a whiner who doesn’t understand the costs of the retirement plan. Before having this important conversation, ensure that you are conversant with the 401(k) and how it works.
Be sure to present all the positive outcomes the plan could have for both the employer and the employees. If your employer is still opposed to the idea of adding a 401(k) plan, you can inquire (politely) why and seek to know how your company can make room for the plan in the future.
Offer to Do the Research and Legwork
It’s one thing to simply suggest the 401(k) plan and another to help set it in motion. After discussing the benefits of a 401(k) plan to the employer, you should express your commitment to ensuring success by taking the necessary steps to get the ball rolling.
If your employer lacks the time needed to compare different retirement plans, you can offer to research available 401(k) plans on their behalf. Giving an assurance that you will look into the options for your employer could be the tipping point that convinces them to jump on the 401(k) Bandwagon.
Send Useful Information and Tools (like our Evaluator)
When researching about 401(k) plans, you’re likely to come across valuable information about 401(k) plan administrators. These are service providers who ensure that retirement plans follow the rules and help employees save for their retirements. They work with legal documents, carry out tests and analysis, and monitor retirement plan operations.
Life, Inc. Retirement Services is one of the 401(k) administrators that offer useful information and tools that your employer can use. We provide comprehensive and customized retirement solutions to corporations and companies of all sizes. To help your employer learn which retirement plan is right for the company, you can advise them to use our Evaluator.