insight
Enhancing employee retention with effective small business retirement plans
Last updated: February 11, 2026
Employee retention is no longer driven by pay alone. Benefits play a growing role in whether employees stay, leave, or never apply in the first place. Retirement plans, in particular, have shifted from a “nice-to-have” perk to an expected part of a competitive compensation package. When employees see long-term financial support built into their benefits, they are more likely to feel valued, plan for the future, and remain with their employer.
Employee retention and retirement plans key takeaways:
- Employees stay longer when they feel supported beyond short-term pay.
- Benefits play a central role in hiring decisions, job satisfaction and loyalty.
- Retirement plans communicate long-term commitment in a tangible way.
- 75% of employees say a 401(k) or defined contribution plan is a “must-have” benefit (ADP Research Institute, ADP 401k Enhanced Capabilities Brochure, which cites MetLife’s 21st Annual U.S. Employee Benefit Trends Study).
Table of Contents
Benefits of high retention for small businesses
Many employers know the importance of employee retention. In fact, 38% of small businesses identify improving employee engagement as a priority, while 36% point to retaining employees as an ongoing challenge (ADP Research Institute, Capterra HR Software Trends Survey, 2025).
Despite the challenges, there are several advantages of employee retention that make it worth striving for. Some benefits of employee retention include:
- Lower turnover costs: Employer spend less time recruiting, hiring and retraining.
- Stronger culture: Employees are more likely to stay when they see growth and long-term opportunity.
- Better customer experience: Consistent service builds trust and lasting relationships.
Contribution to job satisfaction and loyalty
Employees are more likely to remain with an employer when they feel supported beyond their base pay. Retirement benefits, which help people plan for the future and build financial stability, are a prime way to lend this type of support.
Reduction in turnover rates
Benefits that appear relevant, understandable and worth using can boost retention. If they are also accessible and aligned with long-term needs, loyalty may increase even further.
A closer look at employee benefits and retention
Employers might know they should consider benefits to attract and retain employees, but finding the right mix is not always easy. Further complicating matters, employees often evaluate benefits as a complete package rather than isolated perks. Many businesses have addressed this issue by making retirement savings plans, along with health coverage, part of their core employee retention incentives.
Traditional employee benefits
- Health benefits and employee retention go hand in hand, particularly when rising health-care costs affect household finances.
- Paid time off (PTO) supports sustainability and work-life balance.
- Retirement savings plans encourage future-forward thinking and reinforce long-term commitment.
Modern, non-traditional benefits
Many employees today value benefits that support flexibility and well-being. Examples include flexible schedules, remote or hybrid work arrangements, mental health days, and family support resources.
These benefits address daily needs. When combined with retirement savings plans, they create a comprehensive benefits package that supports both current and future goals.
Tailored benefits
Not all employees value benefits the same. For example, hourly and salaried workers often have distinct priorities, and the financial goals of multigenerational teams may vary based on life stage.
Employers must recognize these distinctions. By tailoring benefits to individual needs, they can often increase participation rates and perceived value, thereby strengthening retention.
The best retention strategy: Offer benefits employees want
As participation in benefits increases, retention tends to follow. Therefore, it’s essential for employers to focus on the benefits their workforce needs and will actually use.
If retirement benefits aren’t being utilized, it might be because the benefits need more awareness, are inaccessible or are complicated due to technology or paperwork. Savings plans should be simple to join, easy to understand and have meaningful in value.
Participation and retention can further be improved by complementing retirement plans with incentive-based wellness programs. Such comprehensive packages can help attract the right candidates in the first place and give them a reason to stay long term.
Retirement benefits that drive retention
Retirement plan features that reduce friction and reinforce value, such as the following, are more likely to influence retention decisions:
- Employer match or contributions make staying feel financially worthwhile.
- Shorter eligibility timelines help employees engage earlier (when feasible).
- Simple plan features encourage participation and follow-through.
Employer contributions as an employee retention incentive
Matching contributions is one of the best ways to leverage retirement benefits to retain employees, but only if they understand the value. Clearly communicating employer match can help workers see it as part of their total compensation, thereby giving them a tangible reason to stay with an organization.
Support that keeps people engaged
Instructional guidance and support resources can help employees make more informed decisions about their benefits and improve their overall engagement. Some examples include:
- Ongoing education improves benefit awareness and usage.
- Financial wellness resources increase confidence and participation.
- On-demand tools and live support strengthen perceived value.
Final thoughts: Choosing the right employee benefits for retention
Benefits that support retention are accessible, simple, relevant and perhaps most importantly, understandable. If the perceived value isn’t clear, benefits go unused and have little to no impact on an employee’s decision to stay with a company.
Employers, therefore, must think beyond a one-time enrollment moment and highlight their benefits packages year-round to increase participation. Employees are then more likely to see their employers as supportive of their futures and not inclined to look for greener pastures.
Businesses that need more assistance designing plans that are practical, accessible and built to grow with their workforce can turn to ADP. We’ll help them find a retirement approach that fits their individual needs and supports their retention efforts.
Help your people plan for peace of mind
Get simple, affordable, and easily customizable retirement plans backed by the experience and service of ADP.
Frequently asked questions
How do benefits increase employee retention?
Benefits have a direct impact on whether employees feel valued and see a future with their employer. Retirement savings plans can be particularly influential because they support long-term financial stability, which people are not usually inclined to give up. For maximum impact, however, benefits must be clearly understood, accessible and aligned with personalized needs.
What types of employee benefits improve retention?
Benefits that address both immediate needs and long-term security tend to have the greatest influence on retention. Prime examples include health coverage, paid time off, flexible work options and retirement plans. Of these, retirement benefits stand out because they reinforce long-term commitment and future planning.
How do we improve employee retention?
Improving retention starts with understanding what employees value. Employers must then thoughtfully design benefits for ease of use, clearly communicate their availability and regularly reassess them to ensure they remain relevant as people’s priorities change.
How do we retain employees without increasing salary?
Retention does not depend solely on salary. Benefits that support financial well-being, flexibility and long-term planning can also encourage employees to remain with an organization without raising wages.
Retirement savings plans illustrate this point. When paired with education and support, they add meaningful value that employees weigh alongside a salary.
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ADP Inc. owns and operates the ADP.com website. Unless otherwise disclosed or agreed to in writing with a client, ADP, Inc. and its affiliates (ADP) do not endorse or recommend specific investment companies or products. ADP does not offer investment, tax or legal advice to individuals. Nothing contained in this communication is intended to be, nor should be construed as, particularized advice or a recommendation or suggestion that you take or not take a particular action. Please consult with your own financial professionals for such advice. Only registered representatives of ADP Broker Dealer, Inc. (ADP BD), Member FINRA, may offer and sell ADP retirement products or speak to retirement plan features and/or investment options available in such ADP retirement products.
