This week, Greenshades and companies across the country are celebrating National Payroll Week 2022! To end National Payroll Week, we are celebrating National 401(k) Day.
National 401(k) Day was created by the Profit Sharing/401(k) Council of America (currently known as the Plan Sponsor Council of America, PSCA) in 1996 to promote education about retirement savings. The day was chosen as the Friday following Labor Day so that employees would start the week with Labor Day and end it with retirement.
In yesterday’s blog, 5 Ways to Celebrate National Payroll Week 2022, "Learn about Benefits and 401(k)" was item three. We added this recommendation because educating your employees on these programs represents a great way to give employee recruiting, retention, and engagement a much-needed boost.
Offering competitive benefits like education resources, professional and personal development, financial wellness tools, pet insurance, and health insurance have always been great ways to attract new talent and keep current employees happy and engaged. However, given current low unemployment rates and increased sensitivity surrounding work/life balance issues, highlighting benefits is more important than ever.
Retirement saving plans - such as 401(k) and 403(b) plans - are a great tool for attracting employees, particularly if you offer a matching contribution. Many job seekers consider this a "must have" benefit, so getting a plan in place and highlighting your match levels could give you an edge in the war for talent. Some employees may be tempted to cut back or suspend contributions altogether if they're feeling the pinch of inflation, so reminding employees that continuous contributions can yield big dividends once they're ready for retirement.
(Especially since contributions are made on a pre-tax basis. For more info on the basics of 401(k) accounts, read on!)
What is a 401(k)?
The IRS (Internal Revenue Service), defines a 401(k) as a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts. In simpler terms, a 401(k) is a plan where a certain percentage of your wages are taken and put into a savings account. Employers can also contribute; it is common for an employer to match the percentage (i.e., contributing 3%, matched with 3% from the employer, totaling 6% of your income). These contributions are also pre-tax, which means it does reduce your adjusted gross income, but the money grows tax-deferred (CNBC). There are different kinds of 401(k) and 403(b) plans, which can be explored on the IRS website.
Why is a 401(k) important?
According to CNBC in 2021, 59% of Americans said that they have accepted that they will have to work longer in order to ever retire while 36% believe that they will never have enough money to be able to retire. The Motley Fool reported that 55% of non-retirees have a 401(k) or a 403(b) while 25% have no retirement savings whatsoever. There are of course, many factors that play into the ability to retire; like debt, health, career stability, inflation, income, etc. Therefore, it is incredibly important to educate yourself about the benefits offered by a company when accepting a job but also taking advantage of any resources or plans that can help you in the future.
How much can I contribute a year?
Currently, in 2022, the limit of contribution is $20,500 per year. It increases as the cost of living continues to rise and is always subject to changes and adjustments. If you are 55 and over, you can “catch up” by contributing more to your 401(k)!
If you are an employer and have the means to do so, offering a 401(k) is a great way to attract and retain employees. If you are an employee whose company offers a 401(k) or retirement plan and you are not currently utilizing the benefit, not only is it in your best interest but it can help you prepare for the future. Take the rest of National Payroll Week and Friday, National 401(k) Day, to educate yourself about retirement plans and saving options and get the most out of your payroll systems.