The Value of the 401(k) to the PEO

The value proposition of the PEO, or professional employer organization, fills a critical void that many small-to-medium sized businesses need to operate. 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 highlights, there is one that is often overlooked or viewed as optional to the SMB or PEO:  The 401(k) or similar payroll-deducted retirement savings plan for employees.

Below, we will discuss why the 401(k) is an important benefit 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 as a benefit 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. Further, a 401(k) has become an expectation for most American workers and job seekers. What’s more, future legislation could require businesses to sponsor a retirement savings plan to compensate for the dwindling social security benefits.

The 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 401(k) Benefits for Employers 

One of the most popular reasons businesses offer retirement plans is to attract and keep top talent at all levels of the organization. In addition, employees enjoy a 401(k) plan since it allows them to set aside money for retirement in a tax-advantaged manner by contributing to a tax-deferred investment fund. 

However, employees aren’t the only ones who benefit from a 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) 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. 

401(k) Benefits for Employees 

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 Sponsor Retirement Plan Satisfy state-mandated requirements for offering an employer-sponsored retirement plan.

Key Attributes of A PEO Multiple Employer Plan  

Prospects are more likely to sign up and stay with a PEO if they’ve got a 401(k) as part of a benefits plan. 

The 401(k) has a significant role in client retention and attracting new clients because the value of a PEO increases as more 401(k) participants are established, ensuring that customer base is more consistent and lucrative.

Other key attributes of a PEO Multiple Employer Plan are:

  • Consolidates 401(k) complexities into the simplicity of the PEO model.
  • Worksite employers can easily and cost-effectively participate in the larger PEO MEP.
  • Transfers 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 is an easy 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 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 people who want to learn more about how a 401(k) is administered between Slavic401k and a PEO, 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 complete our PEO Certification Course, click here.

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