A workplace retirement plan is one of the most effective ways to help retain talent and benefit employees' futures. The importance of retirement benefits cannot be overstated.
Business owners consistently report that their toughest challenge is finding high-quality candidates. When a potential employee considers working for your company, a retirement plan is a key deciding factor, along with salary and health insurance. You risk losing quality candidates if you do not offer a strong retirement package. With the unemployment rate at its lowest level in nearly eight years, according to Trading Economics, competition for candidates has increased in many industries. As an employer, you can make yourself more appealing to potential candidates by offering an effective benefits package.
Some workplace retirement plans allow employees to save for their future while offering benefits at tax time. For example, employees can contribute pretax dollars to 401(k)s, the earnings of which grow on a tax-deferred basis until the funds are withdrawn from the account. If they were to invest through a regular brokerage account instead, they would need to pay tax on their investment gains every year. By saving through this type of plan, employees reduce their taxable income for the year and can potentially reduce the amount they owe in taxes. Additionally, employers can contribute to employees' 401(k)s through profit sharing or matched contributions.
As the IRS notes, employees can contribute up to $18,000 a year to a 401(k) account if they are younger than 50 years old, and up to $24,000 per year if they are more than 50 years old. This is much higher than the limits on individual retirement accounts (IRAs), another tax-deferred retirement account Americans can set up outside of work. With an IRA, employees can only save up to $5,500 a year if they are younger than 50 years old, and up to $6,500 a year if they are more than 50 years old.
Offering retirement benefits shows you value your employees, which can help you reduce turnover. You can design your retirement plan with incentives for people to stay on the job through a vesting schedule. A vesting schedule applies to money you pay into a retirement plan on an employee's behalf, for example, matching contributions into a 401(k). For the employee to keep the contributions, they must work for a minimum number of years at your company. If their employment is terminated early, either some or all of the money must be forfeited, according to the schedule. This creates an ideal scenario: your loyal employees receive more benefits, while those who quit early won't cost as much.
A retirement plan is almost a necessity for today's employers. Understanding the importance of retirement benefits will help you appreciate the value of setting up a strong, competitive plan.
Featured on THRIVE
SIGN UP FOR THE THRIVE NEWSLETTER