The value proposition of the PEO, or professional employer organization, is that a PEO fills a critical void that many small-to-medium sized businesses need in order to operate successfully. The most common functions a PEO provides for human resources is payroll administration, employment taxes, access to employee benefit programs, maintaining workers’ compensation, and more. While those may be the main service highlights, there is one that is often overlooked or viewed as optional to the SMB or professional employer organization: The 401(k) or a similar payroll-deducted retirement savings plan for employees.
Below, we will discuss why 401(k)s are important employee benefits to offer your clients, in turn providing a valuable retirement savings plan for their employees.
The 401(k) as an Appendage to Other PEO Offerings
Retirement savings plans are taking on the same status as healthcare when it comes to an attractive benefits package, to be competitive in the employee marketplace today. Within the last decade, the 401(k) has begun to be viewed as part of a comprehensive benefit available to all employees, much like healthcare! Furthermore, a 401(k) has become an expectation for most American workers and job seekers, much like pensions were de rigueur in decades past. What’s more, future legislation could actually require even a small business to sponsor a retirement savings plan in order to compensate for the dwindling social security benefits provided by our federal government.
The PEO 401(k) can be the most direct contributor to the organic growth of the PEO. Client attraction and retention is one of the key contributors to organic growth and is aided by educational tools and resources that contribute to the organization’s direct development.
Key PEO 401(k) Benefits for Employers
One of the most popular reasons that businesses offer retirement plans is to attract and keep top talent at ALL levels of the organization. In addition, employees appreciate a 401(k) plan since it allows them to set aside money for retirement goals in a tax-advantaged manner by contributing to a tax-deferred investment fund.
However, employees aren’t the only ones who benefit from a PEO 401(k) plan; employers can also take a tax deduction for contributions made to their workers’ accounts. In addition, businesses may be eligible for a $500 annual corporate income tax credit during the first three years of having a plan.
Benefits of contributing to a 401(k) plan include:
Tax Benefits: Tax deductions for employer contributions and IRS tax credits of up to $3,000 over the first three years.*
Automatic Payroll Deductions: Simple online enrollment and plan participation via automatic payroll deductions.
High Contribution Limits in 2023, $22,500 employee limit and employer contributions ($30,000 if over age 50) with limit maximum subject to change yearly.
Flexible Plan Design Options: Eligibility requirements, employer matching/profit sharing, vesting, automatic enrollment, and more.
Higher Quality and Lower Cost Investment Options: Access to institutional share class funds with lower expense ratios.
PEO 401(k) Benefits for Employees
The employee benefits from a PEO retirement plan are notable and robust, and include:
Tax Benefits: Pre-tax contributions and tax-deferred investment growth.
Employer Contributions: Matching and profit-sharing, either discretionary or safe harbor contribution options.
Roth Contributions: Tax-deferred investment growth and tax-free distributions.*
*State mandates for employer-sponsored retirement plans satisfy state-mandated requirements for offering an employer-sponsored retirement plan.
Key Attributes of A PEO 401(k) Multiple Employer Plan
Prospects are more likely to sign-up and stay with a professional employer organization if they receive a 401(k) as part of their benefits plan.
The PEO 401(k) has a significant role in client retention, as well as in attracting new clients, because the value of a PEO increases as more 401(k) participants are established – ensuring that the customer base is more consistent and lucrative over time.
Other key attributes of a PEO Multiple Employer Plan are:
- Consolidation of 401(k) complexities into the simplicity of the PEO model.
- Worksite employers can easily and cost-effectively participate in the larger PEO MEP.
- Transference of fiduciary liability to the professional employer.
- Enrollment and onboarding are native to the PEO platform.
Learn more about the advantages of a multiple employer plan here.
Prospecting New Clients with PlanHub
PlanHub from Slavic401k is an easy tech solution to help identify potential new clients for the PEO. The all-in-one prospecting and proposal-generation tool provides a strong value proposition of the PEO 401(k) to prospects and clients in a few simple steps. Through a search of the national Form 5500 database, PlanHub provides a cost comparison analysis for potential clients, highlighting the value of offering a pooled retirement savings plan compared to their existing 401(k) plan.
Click here for more information on how PlanHub can help convert prospects into clients.
As an additional resource for individuals who want to learn more about how a 401(k) is administered between Slavic401k and a professional employer organization, we’ve put together an online course to explain the nuances of the 401(k) plan and the multiple employer plan within the PEO context.
To learn more, or to complete our PEO Certification Course, please click here .
For more information for PEOs, Slavic401k and our financial advisors, and our tech tools to build your future, please follow the links.
https://slavic401k.com/who-we-serve/peos-associations/
https://slavic401k.com/who-we-are/
