Why Your Clients Should Offer a 401(K) This Year

Q1 is a time when many business owners are looking forward… 

What are the company’s goals for the year in terms of growth and revenue? Are there new products or services they have mapped out for the year? How can we save more this year?

It is also a time to take a look at how a business looks from the inside….

Do you have the headcount needed to run the business effectively? Are existing team members trained effectively, or what additional support do they need this year? What roles need to be filled to help the business flourish for the remainder of the year? How can they get the right people in the door? What benefits are we offering, and are our employees satisfied with them? 

For small businesses, offering a retirement plan is a great way to better your business going into the new year. Not only does it support the workforce in place, but it also entices new hires to choose one employer over another. Not to mention, 401(k) benefits open up opportunities for businesses to save via tax credits or deductions.

In this article, we’ll explore some of the main reasons why your clients should be thinking about offering a retirement plan to their employees in 2024.

Recruitment & retention

Employee benefits can be a big factor in which job a candidate chooses to take and why existing employees stick around. In a 2023 Workhuman survey, 63% of all respondents said they would leave their company if they were offered a job with better benefits but less or equal pay.1 

Retirement options are a powerful tool in recruiting new employees. A 2022 Human Interest study found that a retirement plan is the most wanted benefit after health insurance.² 

With the competitiveness of today’s job market, having access to a retirement plan may factor into a job seeker’s decision to accept a role or their decision to stay in a current role - something important for businesses to consider when trying to hold on to their rockstar staff or bring new talent in the door. 

Tax savings

There are tax benefits available for businesses that offer retirement plans for their employees. Legislation like the SECURE Act 2.0 may grant employers tax credits for initiating such plans. This calculator can illustrate how tax credits from the SECURE Act 2.0 may affect the expenses of launching a new 401(k) plan. Moreover, employer contributions to employees' retirement accounts are tax-deductible, providing a means for companies to lower their tax liability for the respective tax year.

Retirement legislation is ongoing. The SECURE Act 2.0, signed into law in 2022, has new provisions that will be in place throughout 2024 and beyond. You can learn more about some of those provisions here.

Do you have clients who could use help finding savings opportunities on their 2023 tax return? There are tax benefits they can still take advantage of even in 2024. Your clients can find relief by starting a 401(k) plan today and backdate the profit sharing provision to 2023, thanks to the SECURE Act 2.0. By backdating the profit sharing, a nonelective contribution could be a much-needed tax credit or deduction. 

State retirement mandates

Many businesses are going to be required to offer retirement benefits. As of March 2024, 47 states have introduced state retirement mandate legislation. Nine states have active state-mandated retirement programs, while 19 states have enacted a program.³ 

These programs require businesses to offer either the state-run IRA or a qualifying retirement plan like a 401(k). Businesses that don’t comply will face fines for noncompliance, potentially costing the business thousands of dollars a year.

Numerous states, including Maine and Virginia, have deadlines in 2024. Businesses in those states risk being fined for noncompliance if they do not sign up for the state-run IRA or file for an exemption with a qualifying plan such as a 401(k). States like Colorado, Connecticut, Illinois, and California are at liberty to fine businesses for noncompliance, as numerous deadlines to comply have passed.

Employee recruitment and retention, tax-saving opportunities, and state retirement mandates are just a few of the reasons your clients of all sizes should consider offering retirement benefits this year.

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