Top 3 Reasons for Small Businesses to Offer a 401(k) Plan

August 24, 2021
Colleagues working together in an office

There are more than 30 million small businesses nationwide. These make up 99.9% of all U.S. businesses. But did you know that fewer than half of them offer their employees a 401(k) plan?*

That adds up to a lot of employers who may not know about the top three benefits to offering a 401(k) plan. Keep this list handy for your next client meeting.

Benefit No. 1: A 401(k) plan can help keep their business running smoothly.

Offering a 401(k) plan is an investment in the overall health of a business. Helping employees save for the future can make them feel supported and financially healthy. This can lead to higher engagement, lower turnover and greater productivity — all attributes that are good for a business’ bottom line.

Benefit No. 2: A 401(k) plan can help employers save for retirement, too.

Business owners get busy and often neglect their own retirement savings. A 401(k) plan keeps this important matter on the front burner for them as well as their employees.

Benefit No. 3: A 401(k) plan offers tax incentives for small businesses.

Employers who think setting up a 401(k) plan is too costly may be unaware of key tax benefits.

In 2020, the SECURE Act:

  • Raised tax credits for small employers who start new retirement plans. The credit went from $500 per year to as much as $5,000 per year for three years.
  • Created an additional $500-per-year tax credit for small employers who set up automatic enrollment. The credit is in effect for three years.
  • Allowed small employers who make matching contributions to claim a deduction up to IRS limits.
  • Let companies reduce their payroll taxes when employees participate and contribute to the plan.


In addition, small businesses with fewer than 100 employees can offset the cost of setting up and administering a 401(k) plan with assets from the plan itself.


* U.S. Small Business Administration, October 2020