Starting a 401(k) for restaurants

What’s on the menu regarding offering employee benefits for your restaurant? Though retirement plans are a major reason employees will stay with their employers, a 401(k) plan is often thought of as too costly and complex for small restaurant businesses. 

We’re here to dispel that idea and help you decide whether you should offer a 401(k) for your restaurant workers. Below, we’ll review the core benefits of offering a 401(k) benefit for your restaurant, bar, cafe, or quick-service establishment. This article will also detail what to consider when choosing a 401(k) plan. 

Learn more about starting a 401(k) for your restaurant:

• 401(k) retirement plans for restaurants

• Use our calculator to see what a 401(k) may cost after SECURE Act tax credits

• Read more about the fees that may be associated with launching and maintaining a 401(k) plan for your restaurant

Be the first to offer benefits for your restaurant employees3 reasons to offer a 401(k) at your restaurant

Hiring and retaining reliable employees is the lifeblood of food and drink businesses. With serious labor shortages, the competition for talent can be tough and very expensive (especially for quick-service restaurants). According to data from the National Restaurant Association, food establishments were below pre-pandemic employment levels by 794,000 jobs. 

This means providing strong benefits, such as a 401(k) for employees, can drive success. Here are three reasons why opening a 401(k) plan can be beneficial for your business. 

1. Improve worker retention

Keeping reliable employees is a major concern for most food establishments, especially for quick-service restaurants. According to the National Restaurant Association, roughly 50% of quick-service operators say that hiring and keeping employees is their biggest challenge in 2022. 

To encourage full- and part-time workers to join and stay at your restaurant, offering a 401(k) plan can be a great incentive. In fact, a Human Interest study commissioned in 2022 found that a 401(k) is the most-wanted benefit after health insurance. That same study found that nine in 10 industrial workers think they need an office job to start saving for retirement. 

2. Earn 401(k) tax credits and deductions

 There are several healthy tax breaks available for eligible employers offering a 401(k). Through the SECURE Act, eligible employers starting a new retirement benefit may receive:

• A tax credit with a maximum limit of $5,000, per year, for the first three years of your 401(k) plan. (Note that this only applies to small businesses with less than 100 employees). This credit can be applied to your 401(k) costs.

• A $500 tax credit per year available for employers who opt to start a plan with auto-enrollment, for the first three years.

• A tax deduction based upon the amount of employer contributions made to the plan.

3. Encourage employees to save and prepare for their financial future

According to data from ZipRecruiter, restaurant workers on average earn $24,592 a year as of September 2022. Data from the U.S. Bureau of Labor Department reports fast food workers make slightly more, with a mean salary of $26,060 as of May 2021. This means that many restaurant workers can take advantage of the saver’s credit.

Single workers who earn less than $34,000 annually in 2022 can claim a tax credit up to 50% (with a maximum credit of $1,000) of their 401(k) contributions on their individual tax return if they meet the following eligibility requirements:  

• Be 18 years or older

• Not claimed as a dependent on someone’s tax returns

• Not a student 

401(k) plans can also include a matching contribution, which enables employers to “match” what an employee contributes to their 401(k) plan. We believe that matching employee contributions can give your restaurant a better advantage when it comes to recruitment and access to employer tax deductions.

How to tailor your 401(k) to the restaurant industry 

1. Provide auto-enrollment options

We believe that you can remove the barriers for your employees to enroll in a 401(k) by choosing a plan with an auto-enrollment option (reminder: employers who use a 401(k) plan with an auto-enrollment option may be eligible to receive a $500 tax credit, per year, for three years). 

Auto-enrollment sets a default percentage of pre-tax money (as stated in the plan document) to be taken automatically as a deferral from an employee’s paycheck and contributed to their 401(k) account. Because this provision requires employees to opt out of participation, it can result in more employees participating and contributing to the 401(k) plan because they do not have to manually set up their 401(k) account. In fact, Vanguard found that auto-enrollment helped increase plan participation by nearly 50% in plans they administer. And among new hires, auto-enroll helped triple participation rates in plans they oversee.

2. Choose a plan with low fees

When it comes to selecting a 401(k) plan, we think you’ll want one with straightforward pricing and fees. For both restaurants and quick service employers, the two primary types of fees you’ll be concerned with are plan administration fees and transaction fees (fortunately, Human Interest does not charge transaction fees).

Plan administration fees are the cost of maintaining a 401(k) plan. This includes compliance, accounting, record keeping, and more. Transaction fees can range from a few hundred to thousands of dollars, and can be charged if you’re planning on: 

• Switching 401(k) providers

• Restating your plan document

• Filing a Form 5500

3. Set eligibility limits and a vesting schedule

If you’re hesitant about providing a 401(k) for part-time employees, you can also reduce costs by limiting 401(k) eligibility to those over age 21 or employees who meet minimum service requirements (for example, a restaurant employee who has completed 1,000 hours of service). If a 401(k) plan seems too risky because you’re worried about turnover rates, you can set up a vesting schedule that will apply to all employer contributions to help increase retention. 

It may be beneficial for quick-service restaurants to establish a cliff or graded vesting schedule that applies to any employer contributions (other than safe harbor contributions). A cliff schedule is pretty straightforward—if an employee leaves before they meet the service requirement, the employee will not be entitled to receive any of their employer contributions. 

For restaurants with short tenures, it may be beneficial to set up a graded vesting schedule. A graded vesting schedule can incentivize employees from leaving an employer because their ownership in any employer contributions made to the plan grows partially each year. 

For example, if you decide to set up a five-year graded vesting schedule on employer contributions made to your employees, your employees will earn ownership in their employer contributions as follows:

Know your options: 401(k) plans for restaurants

Finding the right 401(k) plan in the food and beverage industry to help attract high-quality workers may require a plan that’s customizable to your specific needs. Contact Human Interest to learn what a 401(k) plan can do for your restaurant or quick service establishment.