Why You Should Consider a 401k Retirement Plan for Your Small Business

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Submitted by Life, Inc. Retirement Services on January 4th,2018

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Employees like 401k retirement plans, so much so that they represent the kind of benefit which can help small business owners attract new workers.  That said, more than 70% of small businesses don't offer these plans.  Why are these plans so popular, and why are so many small companies reticent to offer them?

What Is a 401k Retirement Plan?

A 401k is are retirement savings plan which employers sponsor.  Through the plan, employees invest some of their regular paychecks prior to taxes being taken out.  Employees are not required to pay taxes until they withdraw money from their accounts. 

These plans gained popularity in the 1980s.  Prior to that time, most employers offered pension plans, which the employer managed, and which paid a regular income after employees retired.  Those plans were gradually phased out as they became cost prohibitive for employers and replaced with the 401k

Why Is the 401k So Popular?

The 401k offers several key benefits for employees, including the following:

  • Employees don't pay taxes on income invested in the plan until they withdraw money from their accounts
  • Unlike pensions, employees have control over the way the money is invested, usually through some combination of stocks, bonds and money market investments
  • Most employers who offer the 401k also offer matching contributions—for example, if the employee puts in 3% of his annual salary, the employer will match that amount by contributing an additional 3%.
  • If the company goes out of business, the money is the employee's 401k is safe; employees can simply roll their money over into a traditional IRA

How to Set up a 401k Plan for Your Small Business

The reasons the lion's share of small businesses don't offer 401k retirement plans are several.  Some employers believe the plans are expensive to launch.  Others feel they're too complicated to manage and administer, and some incorrectly assume that their employees won't be interested in participating.

Although every business is different, for most those assumptions are simply inaccurate.  In fact, giving your employees the options of a 401k offers several key benefits for you and your small business, including the following 4:

  1. You'll improve your hiring and retention efforts:  according to a recent study from MetLife, employees list the 401k as the third most important benefit, following health insurance and salary.  Because the 401k is so popular, offering this retirement savings plan will make it easier for you to hire new workers, and to retain those you already have.
  2. You can participate in the plan, too:  there's nothing which prevents the owners of small businesses from participating in the 401k they set up.  That's true even for sole proprietorships.  If you decide to participate in the plan, you can invest up to $18,500 a year, or $23,500 a year if you're older than 50.  That's approximately 3 times the amount you can invest in an IRA.
  3. You won't break the bank:  for most employers, 401k plans are affordable.  The cost for record keeping is typically between 0.25% and 1% of the amount of money in the plan.  Total costs (including those for management of the plan and flat fees) usually don't exceed 3%.
  4. You don't need to go it alone:  although the 401k offers important benefits for small business owners, there are rules and regulations which can be difficult for you to understand and comply with.  Fortunately, there are specialty firms who work primarily with small businesses, and have the expertise to advise them when they need help. 


If you own a small business and are considering adding a 401k-retirement savings plan for your employees, you owe it to yourself to get the help you need to make informed decisions, and to avoid potentially costly mistakes.  To learn more about the ways our retirement services and financial advisors can make your 401k plan the asset your company deserves, contact us today. 

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