Amid the “Great Resignation,” today’s workforce isn’t afraid to leave their jobs and seek employment with companies that prioritize their well-being — including their financial health and stability.
That’s why, as a small business owner seeking to retain loyal employees, offering a retirement savings plan like a 401(k) to your workers is a must.
“While there are a variety of factors that contribute to an employee’s choice of employer, offering a benefits package that includes a 401(k) has become increasingly critical for small businesses,” said Kristen Carlisle, General Manager of Betterment at Work.
According to a survey conducted by Betterment at Work, “Access to a high-quality 401(k) and a 401(k) matching program were the top two most important financial wellness benefits that employees are looking for,” said Carlisle. “Offering an employer match is a great way to retain talent and show your employees you are truly here to support them on their journey towards retirement security.”
Why should small businesses offer 401(k) plans?
Carlisle noted that Betterment at Work has seen a major increase in 401(k) plan adoption over the past year, especially among small businesses.
“In such a hyper-competitive talent market, businesses need to pull out all the stops — so offering great benefits that start with a 401(k) is a key way to show employees that you care about them and their financial well-being and remain competitive in the market.”
Additionally, some states now have a mandate requiring small businesses to offer a retirement solution to employees.
“We encourage employers to start with a 401(k), but remember, it’s just one piece of an employee’s financial journey,” said Carlisle. “In addition to a retirement account, employers can offer a variety of other financial planning tools, such as an employer-sponsored emergency fund, access to financial advisors, and student loan repayment benefits to help with broader financial decisions that are all interconnected.”
How can a small business with limited resources offer 401(k)s?
While offering a 401(k) plan to your workers is a smart initiative for companies of all sizes, it can be difficult for small businesses with limited resources.
“The traditional 401(k) sign-up process requires time and effort that some businesses don’t have — particularly small business owners that are juggling many different responsibilities at once and don’t have dedicated HR departments,” said Carlisle. “There have been a variety of obstacles standing in their way in the past, but luckily, there are now several solutions available to businesses today.”
For instance, Betterment at Work offers an online tool that helps small businesses sign up and onboard employees, as well as handle the plan administration and maintenance side of the process.
“As a growing number of states have started requiring small and midsize businesses to offer retirement solutions, they also offer state-run auto-IRA,” added Carlisle. “This is another good option for the small business with limited resources, as IRAs have low administration but don’t offer quite the same quality of retirement plan for employees as a tech-forward provider would with lower contribution limits and so on.”
“In such a hyper-competitive talent market, businesses need to pull out all the stops — so offering great benefits that start with a 401(k) is a key way to show employees that you care about them and their financial well-being and remain competitive in the market.”
-Kristen Carlisle, General Manager, Betterment at Work
Legal ramifications to consider when setting up 401(k) plans
Small business owners should keep in mind the potential legal ramifications associated with offering a retirement plan so they can meet their 401(k) fiduciary responsibilities. By sponsoring retirement plans for your employees, you’ll assume two main roles:
- Named fiduciary, which tasks you with overall responsibility for the plan.
- Plan administrator, which grants you authority and discretion over the operation of the plan.
As a 401(k) fiduciary, you must meet the following requirements:
- Act in your employees’ best interests.
- Be prudent about investing in and administrating the retirement plans or seek professionals to handle that responsibility for you.
- Diversify your plan investments to ensure you are reducing the risk of losses.
- Follow the terms associated with the plan document (unless they go against the Employee Retirement Income Security Act, or ERISA).
- Only pay reasonable plan fees and expenses.
How to streamline and automate your business’s 401(k) process
Small businesses can use third-party services like Betterment at Work to streamline and automate their 401(k) setup, enrollment, and management processes.
For instance, “[Betterment at Work’s] automated platform simplifies and fully manages employee retirement planning — including payroll integration, client services, dashboards, custodial services, ERISA consulting, compliance, and Form 5500 preparation,” said Carlisle.
Automating these processes through a third-party service ensures your employees receive the proper guidance while taking the burden off your shoulders, so you can focus on growing your business.
To set up your business’s 401(k), all you need to do is select the type of plan you want to offer your employees, decide whether you plan to match their contributions (and what percentage you’ll match), communicate your offerings to your employees, then allow a third-party service to enroll, onboard, and manage the rest of the process.
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
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Story by CO, U.S. Chamber of Commerce
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