A 401(k) is a mandatory benefit at any company no matter the size in the 21st century. I've previously talked about how every company should have a 401(k) and if you don't it makes your company look bad since they cost less to establish now than at any point in history. Thanks to technology it's a few clicks and some paperwork to help your employees plan for their future.
Now I want to talk a bit about the next big benefit, matching. 401(k) matching is one of the cheapest, most cost effective, and desirable benefits your company can offer. With a 401(k) becoming so standard and easy to set up companies need to start looking past the 401(k) alone. With all the money you're saving by not using a firm taking a percentage off the top of contributions or charging high management fees you can make your organization look even more desirable. On top of that it's going to save your company money in the long run. Let's see how.
401(k) matches are a free benefit that you can provide to your employees. Sounds too good to be true? It's not. 401(k) matching by a company can be subtracted from an organization's taxable income. The IRS allows for employer 401(k) contributions to be tax deductible as long as the employer contribution isn't more than 25% of an employee's compensation (up to around $250,000), and the combined total between the employee's contribution ($19,500 for 2021) and the employer contribution can't be more than $57,000, or 100% of an employee's total compensation. Obviously you should make sure you're offering a safe harbor 401(k) to ensure employees at all levels are able to take full advantage, but the additional cost for a safe harbor 401(k) is minimal and it benefits every employee at your organization no matter their role.
The question then becomes, if a company can offer up to 25% of an employee's compensation or $57,000 as a 401k match and it's a tax write off, why don't they? Depending on the liquidity of your organization it may come down to being unable to afford to match that much money every month if revenue is low. If you work at a FAANG or any other large corporation it's likely that they're simply cheap and don't want to offer a benefit now that they won't see till tax time. This is especially true if they're already scamming the government by not paying their fair share of taxes through various loopholes.
So how can a business stay competitive in this sense? Many companies are now offering 5% of an employee's salary as a monthly match (I'll put up another post at some point about why you're stressing out your employees if you aren't offering a true-up match). While 5% is good, there's no reason not to offer more unless it's specifically for cash flow reasons. Increasing the match as the company makes more money is something you should strive for as a business owner since every employee directly benefits as long as they are contributing. Rarely do employees benefit directly from greatly increased revenue through equivalent salary increases. Offering a 401(k) match increase due to company performance is something I've never seen at a company but would love.
As an employer you're leaving free money for your employees and better recruitment opportunities on the table while also not helping yourself by reducing your tax bill at the end of the year. No matter your role at the company you should be pushing for better 401(k) matching. It's unfortunate but many HR departments, founders, and CFOs simply don't know about 401(k) matching tax write offs so they could be offering more but don't.
Communicate this to your team and push for it as an employee. When the company benefits you deserve to benefit too. Your work has enabled them to succeed and you should be seeing that success with benefits such as 401(k) matching. Don't take no for an answer and if your company won't help translate their profits in to better benefits for you start looking for a new job that does value you enough to offer 401(k) matching.
This is part 2 of a 5 part series talking about building a 401(k) so good employees won't believe that it's real and employers won't believe how cheap it is to implement.