20 April 2017
Tagged in: Audience
Contingent workers saving for the future: What you need to know about 401(k)
401(k). Super. Pension. Retirement fund… Depending on where you are from you may refer to this benefit by another name. However, no matter the term you are familiar with, the premise is similar. An arrangement designed to allow workers to save for retirement. In the US this benefit is called 401(k), a retirement benefit which you can choose to make available to your workers.
What are the basics?
When offered by an employer, a 401(k) allows employees within the United States to contribute a percentage of their income towards a retirement plan. 401(k) contributions are usually withheld from employee pay and paid directly into their 401(k) fund. By electing to receive deferred compensation employees can reduce their taxable income with these retirement savings. This is mandated by the Revenue Act of 1978 which also provides the employer the opportunity to contribute to their employees’ plan via salary matching or profit share and incidentally receive employer taxation benefits.
Who offers 401(k)?
In the 40 years since its inception, a 401(k)-benefit offering has been utilized by companies to attract and retain employees and to allow them to compete in the global marketplace. The 2016 North America Staffing Company Survey by Staffing Industry Analysts demonstrated the take-up of 401(k) as a benefits offering by companies within the staffing sector. The number of North American staffing firms offering employee-only 401(k) to workers after a tenure period is 22%. Employer matching was offered by 17% of staffing firms after a tenure period. Between 2009 and 2014, the share of staffing firms that offered 401(k) programs increased by 5%.
While this is true, it’s rare for contingent workers to be offered the same retirement benefits as full time employees. This is due to the nature of the relationship between contingent workers and their employers and the complexity of providing this benefit in short term engagements.
What are the complexities around offering 401(k):
Most employers would want to offer a retirement program, however, they are quickly overwhelmed by the administrative burden involved. Finding the right vendors to maintain the plan is just the start of an ongoing, detail-oriented process. The monetary penalties for incorrectly administering a 401(k) plan are high; the impact on the lives of employees even more profound. Upon offering a 401(k) plan the IRS requires that plans be audited annually. The cost to maintain administrative standards and meet compliance regulations for 401(k) audits can typically amount to $10, 000 annually (with administrative and regulatory resources considered).
Can you provide 401(k)?
As career paths shift and workers become more attracted to contingent work, offering a 401(k) option is going to set you apart as an employer of choice. Through PGC you can now make this 401(k) benefit available even to your contingent workers and contractors. This is a unique differentiator in the market and allows you to provide a valued benefit to your employees.
(1) 2016 North America Staffing Company Survey: Initial Findings. Staffing Industry Analysts. August 1, 2016. http://www2.staffingindustry.com/site/Research/Research-Topics-Reports/Americas/NA-Staffing-Co.-Survey-Initial-Findings