Don't have a 401(k) plan? Why now may be the best time to offer one
Learn how the SECURE 2.0 Act can make it easier for your business to offer a 401(k) plan and attract top talent.
A 401(k) plan. For many, that’s a boring topic. But for business owners and leaders—especially if you don’t offer one—a modern 401(k) plan could be your secret to building a strong, loyal workforce.
Let’s dive in to see how a 401(k) could help you overcome hiring and retention challenges, and learn why now might be the time to start offering one.
Your challenge: Attracting and retaining top talent
People are leaving their jobs at record rates:
- In 2022, over 50 million people left their jobs according to FED data, setting a record, besting 2021’s nearly 48 million.
People are leaving their jobs for various reasons:
- We surveyed 1,000 employees and found that burnout or work/life balance topped the list at 31% but 26% left because they found a job with better benefits.
- We also found that 51% said that a 401(k) from a prospective employer would entice them to leave their job. That number increased to 57% when a 401(k) employer match was added.
The struggle to attract (and retain) top talent is real. But you have an opportunity.
Your opportunity: Leveraging the SECURE 2.0 Act
The SECURE 2.0 Act is packed full of 90-plus provisions. We've highlighted a few key provisions that make it easier to offer a 401(k) that benefits you and your employees. Some could reduce (or even pay for) your plan's implementation costs. Others help you capture the long-term employee retention benefit that a 401(k) provides.
Please note that this is not intended as legal guidance or as a comprehensive resource on all SECURE 2.0 provisions. The information provided below is for education purposes only and is subject to change.
Tax credits for small employer plans
- Effective date: December 29, 2022
- Startup tax credit: Tax credits are available to offset the costs of a new plan for up to three years. According to the legislation, plan sponsors with 100 employees and fewer can claim up to $5,000 in their first year.
- Employer contribution credit: This clause allows eligible businesses starting a new plan after 12/29/22 to claim back costs associated with making employer contributions toward employees’ 401(k)s. If your company adopts employer contributions as a part of your plan design, you may be able to claim these costs for up to five years.
- Automatic enrollment credit: Employers that establish a new 401(k) plan after 12/29/22 with automatic enrollment can take advantage of this credit. Employers can claim this tax benefit for up to three tax years if they have 100 or fewer eligible employees.
- Reduced plan cost: A tax credit reduces the amount of taxes you may owe. For smaller employers with lower plan costs, the tax credit may actually cover all 401(k) plan implementation costs in the first three years. Regardless, the SECURE 2.0 Act has made implementing a 401(k) more affordable for many businesses.
Employers can offer a 401(k) match on student loans
- Effective date: January 1, 2024
- 401(k) student loan matching: Qualified student loan repayments could count as elective deferrals and qualify for 401(k) matching contributions from their employer. Employees who take advantage of this would be compliance tested separately.
- Employee retention: If you have employees with student loans, often early in their careers, offering to match their loan payments with 401(k) contributions can help them jumpstart saving for retirement. This becomes an attractive benefit that can help retain talent.
Required automatic enrollment and escalation
- Effective date: January 1, 2025
- Auto-enrollment: Requires plans established after 12/29/22 to automatically enroll employees at a default rate between 3% and 10%.
- Auto-escalation: Requires plans to automatically increase contributions by 1% per year to at least 10% (but no more than 15%).
- Exemptions: Small businesses with 10 or fewer employees and businesses newer than three years old are exempt.
- Opt-out: Employees can change their contribution rate or opt out of the plan at any time. Plans must offer participants who are automatically enrolled the ability to request a withdrawal of their contributions within 90 days of their first contribution.
- Employee retention and financial wellness: In a summary of the SECURE 2.0 Act, the United States Senate Committee on Finance states that auto-enrollment “significantly increases participation” in 401(k) plans. As an employer, the sooner your employees see value in their benefits, the sooner they may see the value in working for your business. Plus, saving earlier in life sets up employees for long-term financial health—and your business can play an important role in that process.
Your solution: A modern 401(k) platform
Because of the SECURE 2.0 Act, now may be the best time in recent history for many businesses to start offering a 401(k). But simply offering a 401(k) isn’t enough. You’ll want to do your research to make sure your plan has the features and technology to make your life, and your employees’ lives, easier.
At Betterment at Work, we’ve designed a modern 401(k) platform for you and your employees:
- For you: We’ve streamlined onboarding, payroll integration, and detailed reporting—all accessible on one easy-to-use dashboard. Plus, we’re here to help make meeting SECURE 2.0 Act requirements simple. Save time on managing 401(k) student loan matches, auto-enroll, and auto-escalation through our simplified admin tools.
- For your employees: Employees can link outside accounts, get retirement advice, and take advantage of automated tax-smart strategies. Plus, our Student Loan Management feature helps employees pay off their debt while gaining a 401(k) contribution if you choose to match their loan payments.
For a full overview of what to consider when building out a 401(k) plan, check out our Plan Design article.