In 2013, an American Express survey indicated that 60% of small business owners were not saving sufficiently for retirement. An additional 13% said they were worried about being able to maintain their lifestyle after retiring. As worrisome as this is, the situation for employees is even worse. In a recent study by the Schwartz Center for Economic Analysis, it was shown that 68% of the working-age population did not participate in an employer-sponsored retirement plan at all, in large part due to their employers not offering a 401(k). Employers may avoid offering a 401(k) plan for many reasons, including: concerns about cost, administrative burdens, having to provide a matching program, in addition to many more. Despite these concerns, there are four triggers that should motivate small to mid-sized companies to take the leap and set up their first 401(k).


Trigger 1: When you’re ready to expand your business


As businesses look to expand their operations or attract high-quality employees, every additional incentive offered creates more appeal in the marketplace.   For many prospective employees, having a 401(k) plan available is a bare minimum expectation. If your company is ready to expand and bring on new talent, it may be time to look into setting up a company 401(k).


Trigger 2: When you’re concerned about employee turnover


The cost of losing top talent to turnover and, in turn, hiring and training replacements, can be substantial to say the least. With that in mind, offering benefits such as 401(k) plans and wellness platforms that are designed to retain these qualified employees, leads to cost savings and increased productivity. Not only does this help your bottom line, it helps everyone who participates to achieve greater success in preparation for retirement. If employee retention is a concern for your business, offering a 401(k) can and will help.


Trigger 3: When your company has reached profitability


It can take years for your small business to reach a true level of profitability. If you’ve put in the work to get to that point, and are now able to draw a larger salary, it’s important to consider ways to preserve and utilize the income to your benefit, and seek out tax deductions for your business. With the ability to defer up to $18,000 of your compensation to your 401(k), and an additional $42,000 possible through employer matching and profit sharing contributions, establishing a 401(k) can be a means of setting a significant amount of tax-advantaged money away, year after year. Establishing and maximizing the benefits associated with a 401(k) ensures that you will not be one of the many small business owners concerned about having sufficient savings for retirement. Additionally, employer matching contributions are tax deductible for your business, which can be an essential tax advantage for your recently profitable company.


Regardless of why you end up deciding to open a 401(k) for your business, understand that the benefits that it will provide to you, your company, and your employees, are likely to far outweigh any costs or concerns about administrative burdens. With low-cost, high-service 401(k)s  becoming more and more available to small businesses, the decision to expand your benefits offering by setting up a 401(k) should be an easy decision to make.

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David joined BenefitGuard after having spent the past 9 years working for the largest worldwide provider of 401(k)s. His passions include: economics, personal finance, investing, woodworking, and family.

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