How policy changes are making offering a 401(k) more affordable than ever

One of the most common ways people save for retirement is through employer-sponsored retirement plans, like a 401(k). A recent survey showed that 90% of jobseekers say a 401(k) plan is a must-have benefit. However, many small and mid-sized businesses often don't think they can afford to offer a 401(k).

Now that's changing. Thanks to policy changes, new tax credits, and affordable 401(k) options, offering a meaningful retirement benefit has never been easier. Let's take a quick look at the trends making 401(k) accessible to businesses today.

Trend 1: Policy is adding pressure for businesses to offer retirement savings plan — but is also offering a carrot

Lawmakers have been working to increase the number of people who have access to retirement savings plans. How? By encouraging businesses to offer one.

Today there’s no national requirement for businesses to offer a retirement plan but at least 15 states have their own policies that require businesses to either offer a private retirement plan or enable workers to use a state-sponsored retirement program.

While there are some differences from state to state, these programs are designed to automatically enroll employees who are not covered by employer-sponsored retirement plans into state-sponsored retirement programs. Several other states have new voluntary programs where employees can access a low-cost retirement option on their own but don't require any facilitation by the employer.

These mandates may feel daunting, but the federal government has offered a carrot by way of tax credits. At the federal level, the SECURE Act (2019) and SECURE 2.0 (2022) have included tax incentives to make retirement savings plans more accessible for small and mid-sized businesses. The tax credits outlined in these two acts can help offset costs and the legislation even allows multiple employer plans or pooled employer plans to offer a plan.

Trend 2: Tax credits and deductions are growing, helping companies cut costs

If you're concerned about the cost of offering a retirement plan, you're not alone. More than two-thirds of benefits decision-makers who don't offer a retirement plan said they believe offering a 401(k) is cost-prohibitive.¹

However, several new tax credits can help offset the costs of starting a new retirement plan. Depending on your company's eligibility, these tax credits could cover 100% of your company's 401(k) plan costs for the plan's first three years.² These credits include:

Small Employer Pension Plan Startup Credit

Small Employer Automatic Enrollment Credit:

Tax deductions for employer contributions:

Be sure to talk to your accountant or tax advisor about which credits your company may qualify for and what makes the most sense for you and your business.

Trend 3: Offering a match is more affordable

While providing a 401(k) match can benefit both employers and employees, it may seem expensive or unaffordable to some business owners. SECURE 2.0 aims to make this benefit a little more tempting for employers with an additional tax credit for employer-matching — up to $1,000 per employee.

Even if you can’t swing the match, employees earning low income might still qualify for the new Saver’s Match, a program that starts in 2027. This replaces today’s Saver’s Credit program which provides a $1,000 tax credit to people earning low income. In the new Saver’s Match program, employees who contribute to 401(k) or IRA can receive a match of 50% up to $2,000 from the federal government to be deposited into their retirement account if they meet the income requirements.