Today is National Savings Day, so it seemed like an appropriate time to talk about one of our new employee benefits: our 401(k) plan.
The Importance of Benefits to Small Businesses
As you know, we consider ourselves a small business. We currently fluctuate between 4 and 8 employees, with a growth plan to max out around 20. Because of our small size, we don't legally have to offer paid time off, health insurance, or a retirement plan. But we do anyway for 2 reasons.
- It keeps us competitive when hiring and retaining employees.
- It's the right thing to do for our team.
We've had health insurance for several years (which the company pays a flat portion of—currently a higher % than our employees pay overall). We went to an "open time off" policy a few years back, in part to make managing time off easier (no accounting needed!) and in part because we trust our employees to look out for the business and our clients as well as themselves as they think about time off.
Why offer a 401(k)?
Since I came from a financial services background—spending 5 years doing marketing for one of the largest broker/dealers in the country—it was important to me, personally that we offer some form of retirement savings to our team. I also didn't start saving for retirement until I was almost in my 30's—which can set you back quite a bit. Since we have several young staff members, we wanted to encourage them to get started early. Lastly, most companies our size don't have a retirement plan—or they have a very limited IRA option. We wanted to be sure we were offering something competitive with companies much larger than us—to attract and retain talent—but also to help our employees with retirement savings.
Finding the Right Plan
We've been exploring offering a 401(k) for the better part of 2 years. We asked our current employees at the time about a plan, and they were interested, and worked to gauge interest in prospective employees as well. It was clear it would be a great selling point. Now we just had to find a plan. We explored several plans, both self service and full service and ended up with a hybrid plan. Most of the management is self service—we withhold from employees and deposit the employee portion and match into the 401(k) account. But our provider does a lot of the heavy lifting. They provide all compliance necessary, plan materials and guidance for our employees, live support for us as we manage the plan, and a ton more.
But What Does it Cost?
Being a small business, we're also very conscious about our expenses—and a retirement plan is definitely a cost to the business. We chose a plan through Capital One that has very low management fees (we're talking less than $100/mo for our asset size) and a broad range of investments that have low fees themselves. Great for us. Great for our employees. Aside from those fees, we had a small setup (under $500) and the only additional cost is the company match, which can be from 1-4% of employee salaries. And yes, part of that is offset by reduced payroll taxes—as contributions from employees aren't taxed.
A Successful Launch
We launched our plan on 9/1 and have all non-owner employees participating. We offered a pretty standard match, and now have the flexibility to use the 401(k) to offer profit sharing and/or bonus contributions from the company. All of which help reduce
our tax burden (and our employees' personal income taxes).