Do this at work, and everyone wins
Why your employer should offer a 401(k) match.
Good news: Next year, 401(k) annual contribution limits jump to $19,000 from $18,500 (and to $25,000 for folks 50 or older who take advantage of catchup contributions).
If your employer matches your contributions, that’s also a big plus, as it adds even more money to your retirement savings.
But many firms’ plans don’t match any employee savings. If your company is among them, it’s time to buck up and request this change.
Employers may hesitate to offer a match because they presume it’s a costly hassle – likely a particularly acute concern for tiny businesses. They may not know matching contributions have tax benefits, make annual 401(k) audits less stressful and improve employee loyalty.
If you can show your employer how offering a match strengthens his or her business, you’ll be a hero to co-workers and a star to management.
When you make your pitch, start with the tax goodies.
Every dollar an employer contributes as a match counts as income for that employee, even though it isn’t taxed until he or she withdraws funds in retirement. That means a match reduces the business’ taxable income and tax bill now. Great! They can’t go hog-wild, as the IRS caps total employee plus employer contributions at $56,000 next year. But even a 50 percent match, like my firm offers employees, boosts workers’ savings while streamlining the company’s tax bill.
Tax deductions aren’t the only way offering a match helps everyone save more. Simply having a match increases employee participation in the plan – the higher the match, the higher the employee participation, according to a recent Labor Department study.
Higher participation rates aren’t just good for the workers. They also help businesses stay on the happy side of the law.
If the business’ highest earners are those who primarily benefit from its 401(k), that’s a flashing red warning for the Labor Department and third-party auditors. At year-end, the highest-paid workers (the big bosses) might even be forced to take a chunk of their deferred savings back and pay taxes on them.
A match can prevent this. Because it increases both participation and defer- ral rates, it boosts the total amount of money employees contribute by 50 percent. When more workers save more this way, it takes the heat off higherpaid workers. They’ll be more likely to be able to max out. If your employer frets about adding fixed costs as participation rates rise, you can explain that they can choose a matching set-up that lets them tweak the program as needed. They can offer a big match when they’ve had a good year, yet reduce their contribution in lean times if needed. This enables everyone to save more while keeping the business safe.
Lastly, show your company that when employers match savings, employee loyalty increases. These days, retaining talented employees is a struggle in nearly every industry. Unemployment hasn’t been this low since 1969, and there are just over 7 million jobs available in the U.S.
Booming job markets mean tough competition for talent. As your employer brainstorms ways to keep you and your co-workers from looking elsewhere, they may have already considered matching, but nixed the idea. That’s OK.
By calling it to their attention now, you’ll help them find greater value in next year’s coming changes. Changes to corporate taxes have helped more and more companies fathom the connection between 401(k) matching and employee loyalty. Companies including Visa and Nationwide have reported raising match percentages now that they have extra funds on hand. Encouraging your employer to do it, too, will help them compete.
Help your employer see the benefits of a match, and you’ll help yourself – and your colleagues. Everyone wins!
Ken Fisher is the founder and executive chairman of Fisher Investments, author of 11 books, and is No. 200 on the Forbes 400 list of richest Americans.
Follow him on Twitter @KennethLFisher.
The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.