I live in the San Francisco Bay area and that means I’m immersed in startup culture. When founders learn that I work for 401GO, they often comment that they look forward to the day they can offer a startup 401(k) plan. And that’s my cue to start preaching.
Offering Retirement Benefits is a Signal of Stability
Startups are constantly competing for the attention of three groups: customers, talent and investors. As a startup, 401(k) plans send strong signals to the latter two that a startup is stable and on a course to success. It also goes a long way toward keeping talent from jumping ship for the next shiny object to come along.
It also reduces pressure to constantly give raises. According to a Glassdoor survey, 79% of employees prefer new or additional benefits over a pay increase. Employees are more likely to stay with a company that invests in their future. The Society for Human Resource Management (SHRM) found that 82% of employees consider retirement plans an important factor in job satisfaction.
Tax Advantages
When founders complain that money is tight, their runway is short and they can’t afford to offer a 401(k) plan, they are always surprised to learn that federal SECURE 2.0 legislation provides substantial tax credits to offset setup and administrative costs.
Eligible startups can take advantage of tax credits across three key areas:
- Startup Administrative Credit: Covers up to 100 percent of ordinary administrative and setup costs, up to $5,000 per year for the first three years.
- Auto Enrollment Credit: Provides an additional $500 per year for 3 years if you include an eligible auto enrollment feature.
- Employer Match Credit: Additional tax credits of up to $1,000 per employee to help offset employer matching contributions over the first several years.
To explore our current plan options and transparent pricing, visit our official Pricing Page today.
The tax benefits extend to the employees, also. Employee contributions to their 401(k) are made pre-tax, reducing their taxable income for the year, which can lead to significant savings.
Financial Wellness
As a startup, 401(k) plans show a founder cares about their employees’ long-term financial wellbeing. According to a study by the Employee Benefit Research Institute, employees with access to retirement plans are significantly more likely to have substantial savings.
Financially secure employees are typically more productive and loyal while experiencing less stress day to day. Lower stress means better physical health. Additionally, a PwC survey found that employees under financial stress are twice as likely to leave their job, further reducing efficiency-killing turnover.
What’s more, 401GO customers enjoy free access to a suite of personal financial management tools that drive better personal fiscal outcomes.
Payroll providers and financial advisors serving startups should counsel them that adding a 401(k) plan to their benefits packages provides them with a secret weapon that will make them more attractive to talent and investors, and having those resources in place will result in a better product certain to catch the attention of customers. Talk to me to learn more.