From Your Business Objectives to Your Bottom Line: The Business Case for Retirement Benefits

 

Top talent, lower turnover, increased productivity, and small business tax credits that are 10x what they used to be.1 Times have changed, and today’s retirement solutions can have a long-term impact on your small to mid-sized business. 

  • A retirement plan can play a fundamental role in advancing your company’s business and growth objectives.
  • Small businesses may benefit from substantial tax credits that help defer the costs of starting a workplace retirement plan.2
  • A retirement plan can positively impact an organization’s people and culture while providing bottom-line value.
  • Morgan Stanley at Work offers access to a variety of efficient, low-cost retirement solutions designed to fit the needs of small businesses.

80% of job seekers surveyed on behalf of the American Institute of CPAs would choose a job with benefits over an identical job that offered 30% more salary with no benefits.

Small to mid-sized businesses are the lifeblood of the U.S. economy – employing nearly half of the American workforce.3 For years, small business owners have recognized that offering a retirement plan can help their business and employees build for the future, but available options seemed out of reach.

That’s no longer the case. In fact, offering a retirement plan can provide a host of opportunities for business owners and their workforce while helping to level the playing field in a competitive talent landscape. The advantages can be substantial, and the business case for why you should consider offering a retirement plan has never been stronger.

Implement a Growth-Focused Talent Strategy

In today’s marketplace, competition for the best candidates is at an all-time high. Top talent increasingly expects employers to offer retirement benefits as part of their compensation package, regardless of business size. Moreover, businesses without the benefit risk being passed over by top-tier candidates while exposing current employees – and their company – to competitive employment offers.

A retirement plan can help focus your recruitment and retention efforts, providing a highly desired benefit while demonstrating your commitment to your employees’ long-term well-being. Studies have shown that of employers offering 401(k) plans, 94% said retirement plans helped drive recruitment.4

Saving for retirement remains the one area where employees want help from their employers
Willis Towers Watson 2020 Global Benefits Attitude Survey

Improve Your Bottom Line

It’s hard to quantify the value of a high-quality workforce, but the cost of losing talent is measurable – from one-half to two times an employee’s annual salary by some estimates.Add to that the time and effort associated with finding and training a replacement, which can take one to two years to bring the new hire fully into the fold, and the costs become substantial.9

Offering a retirement savings plan can play a crucial role in retaining employees, inspiring loyalty and ensuring they feel valued and engaged in the workplace. When employees consider themselves invested in a company, they can be more focused on contributing to its success.

In a SCORE survey, 52% of employers said retirement plans helped attract better qualified employees. 7

To be sure, the pandemic has had an effect on retirement plans, as it has in nearly all facets of employment. But the trends have shown a steady increase in the amount of money Americans invest in their 401(k) plans: More than $4 trillion were invested in 401(k) mutual funds, as of September 2020, compared to $830 billion in 2000.10 When plans are available, 43% of Americans take advantage of them. 11And even in the face of the tough economic times that have been the consequence of Covid-19, participation has remained steady: Only 2% of direct-contribution plan participants stopped making contributions in the first half of 202012. With the right plan and support, offering retirement benefits can give your business the types of competitive advantages that help build long-term and substantive growth.

Turnover costs a company an average of 33% of the employee’s base pay – so for every three workers who leave your company, you could have one additional full-time employee for the same expense.13

Tax Breaks and Business Tax Incentives

The business advantages for retirement benefits extend far beyond the workforce or talent strategy. In recent years, the federal government has implemented financial incentives specifically for small businesses to help offset the costs of offering a retirement plan. Most noteworthy is the SECURE Act, signed into law in late 2019, which offers several significant tax advantages, such as:

  • A potential tenfold increase in start-up tax credits – from $500 to $5,00014 – for businesses with one to 100 employees.15
  • Additional tax credits for specific plan features, such as automatic enrollment.16
  • Setup fees and other administrative expenses are tax-deductible and, with specific plans, can even lower your tax liability.17

The net result is that the federal government has recognized the importance of making retirement plan sponsorship accessible for ALL businesses. For small businesses, workplace retirement solutions have never been more accessible or affordable, creating strong advantages for talent, growth, and bottom lines. 

Despite concerns about the expense, retirement savings plans only cost employers 2.4% of an employee’s compensation, on average18

For your business and your employees, a retirement plan is an opportunity to start building for the future today. Connect with a Morgan Stanley Financial Advisor to learn more about both the costs and benefits of setting up a retirement plan for small to mid-sized businesses. You should consult with your legal and tax advisor when considering a retirement plan for your business.

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1 https://www.congress.gov/116/plaws/publ94/PLAW-116publ94.pdf#page=605
2 https://www.congress.gov/116/plaws/publ94/PLAW-116publ94.pdf#page=605
3 https://advocacy.sba.gov/2020/06/05/advocacy-releases-2020-small-business-profiles-for-the-states-and-territories/
4 https://www.score.org/resource/infographic-small-business-retirement-investing-your-future
5 https://www.willistowerswatson.com/-/media/WTW/Insights/2021/02/2020-global-benefits-attitudes-survey.pdf
6 https://www.accountingtoday.com/news/workers-prefer-benefits-over-more-pay-study
7 https://www.score.org/resource/infographic-small-business-retirement-investing-your-future
8 https://www.gallup.com/workplace/247391/fixable-problem-costs-businesses-trillion.aspx, March 13, 2019
9 https://blog.hrpartner.io/understanding-why-employees-leave-10-turnover-statistics-you-need-to-know/
10 https://www.ici.org/policy/retirement/plan/401k/faqs_401k?con=11880elqCampaignId5217
11 https://www.morningstar.com/articles/1000743/100-must-know-statistics-about-401k-plans
12 https://www.ici.org/401k/news/20_news_recordkeeper2q20
13 https://cdn2.hubspot.net/hubfs/478187/2018%20Retention%20Report/Work%20Institute%202018%20Retention%20Report%20043018%20-%20Final.pdf?_hstc=163589856.499db31e60ab67685806065393c6f142.1615481531105.1615481531105.1615481531105.1&__hssc=163589856.1.1615481531105&__hsfp=3162055347&hsCtaTracking=41368a2d-809b-4c8f-8e7a-e195fe5797b5%7C8141e251-f703-4a71-95f7-7cd1c49d7dce
14 https://www.irs.gov/retirement-plans/retirement-plans-startup-costs-tax-credit
15 Under the terms of the legislation, the $500 annual start-up tax credit was increased to the greater of (1) $500 or (2) the lesser of (a) $250 for each non-highly compensated employee who is eligible to participate in the plan or (b) $5,000.
16 https://www.irs.gov/retirement-plans/retirement-plans-startup-costs-tax-credit
17 https://www.irs.gov/retirement-plans/retirement-plans-startup-costs-tax-credit
18 https://www.score.org/resource/infographic-small-business-retirement-investing-your-future

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Morgan Stanley Smith Barney LLC is not implying an affiliation, sponsorship, endorsement with/of the third party or that any monitoring is being done by Morgan Stanley Smith Barney LLC (“Morgan Stanley”) of any information contained within the website. Morgan Stanley is not responsible for the information contained on the third party website or the use of or inability to use such site. Nor do we guarantee their accuracy or completeness.

Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under the Investment Advisers Act of 1940, ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in writing by Morgan Stanley and/ or as described at www.morganstanley.com/disclosures/dol. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.

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