Retirement is on many employees’ minds during all stages of their careers. They work weekly to ensure they have enough money in their checking account but sometimes may neglect their savings. About 15% of Americans have no money set aside for retirement at all.
Employers can help by encouraging employees to participate in the company’s retirement program. A business also has the option to match its workers’ contributions. Doing so is beneficial for both parties. These six reasons show why a company board should implement a policy to match employees’ 401(k) contributions.
1. Tax Credits
One of the top benefits for a company matching retirement contributions is the tax credits it can claim. The federal tax code says that an employer can write off contributions to employees’ 401(k) plans as long as the donations stay within the limit allowed. Businesses can choose different retirement plans, each with varying rules. Some of these plans include:
- Traditional 401(k): A traditional 401(k) plan is a standard policy allowing a company to make contributions for all its employees. This plan must follow guidelines to ensure all workers get the same percentage so one doesn’t get more than another.
- Safe harbor 401(k): All employees get a fixed contribution from their employer in a safe harbor 401(k) plan, and the money must be vested immediately. The IRS subjects these options to the same discrimination tests as traditional ones.
- SIMPLE 401(k): A Savings Incentive Match Plan for Employees (SIMPLE) 401(k) plan is a popular choice for small businesses with 100 employees or fewer. In this plan, employers must make fully vested contributions, but they don’t have to do the discrimination tests the previous two require.
2. Employee Retention
Companies that care for employees’ finances are more likely to retain their talent over the long haul. Workers are starting to care more about their finances, saying financial wellness programs are a priority in their careers. Retirement plans are the most important things employers prioritize, along with health care and other financial-related stresses.
Happy employees tend to stay with the company, and more continuity means less turnover. A business that can keep most of its workers will spend less money on onboarding and training for newcomers. The average company spends over $1,000 on every new person it must onboard, so this adds up to substantial savings.
3. Better Hiring
Better retirement programs can retain employees, but companies still run into turnover with retirements, firings, relocations and more. A plan with matching contributions makes companies attractive to prospective workers. Suppose a business finds a talented young prospect. In that case, it can use financial wellness programs to rope in the individual and keep them for an extended time.
Retirement is a critical issue among many job-seekers. Aside from the pay, benefits like health care and retirement are at the top of the list. Favorable retirement programs can increase employees’ personal investment in a company and encourage them to stick around. About 90% of employers in the United States offer retirement plans, but only 76% of them match contributions. Implementing a policy of matching 401(k) contributions can set a company apart from its competition.
4. Increased Productivity
The financial status of a company and an employee can affect their productivity levels. About 80% of employers say that a worker’s money issues impact their performance on the job. A company that provides a retirement plan and matches contributions can relieve financial stress from its employees. This leads to happier and more productive employees who will have better attendance at work and increase their daily output.
5. State Law Requirements
Some states have passed legislation requiring all employers to sponsor a retirement plan for their employees. For example, California requires private sector companies with five or more workers to participate in its CalSavers plan. A company not participating in the program may subject itself to financial penalties. The law went into effect on June 30, 2022, so a business planning to move to California should consider the new regulations.
Requiring retirement plans has been a trend in recent years, with more states planning to join the fold. States like New York, New Jersey, Maryland and Maine have passed legislation to enact mandatory retirement plans soon. Others, like Massachusetts and Connecticut, have already implemented such legislation.
6. Social Security Uncertainty
The Social Security Administration was established in 1935. A century later, the safety net giving benefits to 69 million Americans could be in trouble. According to its 2022 report, the Social Security Board of Trustees said the current fund surplus will run out by 2035. Americans who get Social Security will only receive about 80% of the benefits they’re supposed to get. Therefore, providing a good retirement plan with matching benefits is paramount for companies these days.
Matching Retirement Contributions for Employees
The pandemic has shifted employees’ priorities and made them choosier when applying for a new role with another company. They prioritize robust perks like working from home, health care benefits and retirement plans. Companies providing matching contributions show they care and want to attract and retain talent. It also helps save money through tax credits and less spent on onboarding new workers, so it’s a win-win for all.