One of the benefit options that job candidates
and employees find most attractive is a 401(k) plan. As you lay the groundwork
for what your company will offer in its benefits package, this will probably
come up in discussion. While it’s important to consider things that will keep
your workforce happy and financially secure, you also must consider what
offering a 401(k) plan will cost your business.
How does a 401(k) work?
A 401(k) plan is an employer-sponsored retirement plan in which employees choose to either defer a set amount of cash or a percentage of their income to a retirement account. Some 401(k) plans offer employer matching where the business also contributes up to a certain percentage into the employee’s retirement account.
The way that a 401(k) plan is taxed depends on
the type. Traditional 401(k) plans deduct from your paycheck pre-tax but is
taxed when withdrawn. Roth 401(k) plans, on the other hand, deduct from your
paycheck after taxes but there’s no tax on withdrawals.
Employees can withdraw, or distribute, funds
from their 401(k) but only in certain scenarios and often with additional
withdrawal fees if done before the age of 59 ½.
Participants in a 401(k) plan are required to start distributing funds at the age of 70 ½, unless they are still employed. There are many other nuances to 401(k) plans, but that’s essentially the nuts and bolts of how they work. There are many myths and misconceptions about 401(k) plans that may keep you from offering them, but in the long term, they are beneficial for employees and employers alike. You may find that utilizing an HR software makes it easy to offer 401(k) options to your workers. For instance, Workful allows you to set deductions, so 401(k) contributions are automatically deducted from your employee’s salary, You can decide whether the deductions are a percentage of their pay or a specific dollar amount. Workful takes care of the rest.
Your workers can prepare for retirement
without a company matching policy, but it’s something to consider when
determining the competitiveness of your benefits package. Even if you can’t
match contributions equally, you may be able to offer something. For example,
some companies contribute 50 cents to the dollar. But even a small effort can
go a long way toward building a positive company culture.
For employers that offer a 401(k) matching
program, employee contributions to those accounts can be calculated and
deducted directly from their paychecks, saving administrators time and double
Benefits of Offering a 401(k) for
While offering a 401(k) plan to employees may seem
unnecessary, it’s also something that can help you entice better job candidates
and contribute to a company culture of financial security. In order to
encourage more companies to offer 401(k) plans to employees, the government has
tax credits for businesses that
include retirement arrangements in their benefits package.