1. Sales & Marketing
  2. Finances
  3. Your Team
  4. Technology
  5. Social Media
  6. Security
We are here for your business - COVID-19 resources >
Product and service reviews are conducted independently by our editorial team, but we sometimes make money when you click on links. Learn more.
Grow Your Business Finances

Offering a 401(k) Plan? Tips for Small Business Owners

401k Tips for SMBs
Credit: designer491/Shutterstock

A 401(k) is a retirement savings plan provided to employees by their employers that allows workers to save a portion of their paycheck before taxes. It provides financial benefits to all members of the company, including the owner, and is highly sought after by employees. Common objections from small business owners are that it's too expensive, it requires time-consuming administrative work and employees won't want to participate.

This guide explains some of the benefits of offering a 401(k) and demonstrates how SMBs can obtain a quality plan.

  • Happy employees mean more profits. Studies show that happy employees contribute to higher profits. For example, revenue increased 22.2 percent for the 2014 Fortune 100 Best Companies to Work For. Many employees look for retirement options as one of the primary benefits when deciding where to work, so offering it can increase job satisfaction, reduce turnover, attract better talent and increase profitability.
  • Technology makes it easier than ever. There are several tools that make the administrative work associated with starting a 401(k) quick and easy. Human Interest offers a tool that is specifically made for business owners wanting to offer a 401(k). You can also outsource management of 401(k) to a financial services company.
  • Don't overlook the tax advantages. All the money earned on investments is protected from taxes until retirement. When you do take the money out, you are taxed an income tax rate rather than capital gains tax rate, which is usually more favorable.
  • Consider outsourcing the administration. Bringing in an in-house expert can be very costly, and to do so without experienced personnel could lead to mistakes or make the process inefficient. By outsourcing, you gain administrative efficiency that comes with experience at a reduced cost as well as reductions in liability. Professional employer organizations are third-party companies that handle human resources, payroll, benefits and 401(k) plans for small businesses. Thousands of small businesses nationwide partner with PEOs to get access to competitive benefits and 401(k) plans. Choosing a PEO can be complicated, but there are several different types that make sense for a variety of small businesses. The best PEOs have industry accreditation, minimal requirements for coverage and great features like short-term contracts.

Editor's note: Looking for a PEO for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

  • Provide competent, qualified financial advisors. It is very beneficial for your employees to have someone to consult with on how to invest in their account and how much they should contribute. It also takes the burden off you when it comes to managing the 401(k) plan. Be sure to properly vet your applicants for the financial advisor position, because poor financial advice can have serious consequences financially and legally.
  • Provide good investment options. Ensure your company offers a good range of investment options for employees to pick from. Your mutual fund options should represent different markets such as U.S stocks, international stocks and bonds. A good rule of thumb is that 75 percent of your mutual funds should have an expense ratio of less than 1 percent. Also, keep track of how the funds in your plans are doing, whether they are underperforming, matching or outperforming their benchmarks. You want to ensure your employees are happy with the options available to them. Swapping fund options in and out of your 401(k) should be cost-free and relatively simple to do.


Shimon Brathwaite

Shimon Brathwaite is an undergraduate co-op student from Ryerson University, graduating in 2019 with a Bachelor’s Degree in Commerce. Shimon has worked in information technology and the water sports industry in between academic semesters. His hobbies include a wide variety of sports such as Soccer, Basketball, Muay Thai and keeping up with TV series like The 100 and Game of Thrones. Contact him at sbrathwaite@ryerson.ca and check out his website at cyberintel.ca.