Why should benefits brokers offer a 401(k) to their clients?

Workplace benefits are playing an even greater role in the final decision-making of job applicants and individuals already employed. According to a 2024 SHRM Employee Benefits Survey, retirement benefits rank just behind healthcare in overall importance to employees and employers.

With such demand, a comprehensive 401(k) offering is a competitive part of a robust benefits offering. And as a benefits broker, it’s a great idea to consider including one in your portfolio.

401(k) plans allow you to deliver more tax benefits to your clients

The U.S. government wants to encourage people to save for retirement and provides strong financial incentives for doing so through a workplace 401(k). They make corporate tax benefits and credits available to employers in various ways, the biggest of which is that every dollar a company contributes to their employees’ 401(k) plans is tax-deductible up to the applicable limit:

• Sole proprietors deduct employer contributions on Schedule C (Form 1040) or Schedule F (Form 1040)

• Owners of partnerships deduct them on Form 1065

• Owners of corporations deduct them on Form 1120 or Form 1120S

This can be a major tax deduction for employers. For example, in 2025, an employer can deduct contributions up to 25% of the compensation paid (or accrued) during the year to eligible employees participating in the plan. For more information on how much a business can deduct from employer contributions to retirement accounts, consult Publication 560.

Also, for 2025, only annual compensation up to $350,000 can be used for the calculation of any employer contribution.

SECURE 2.0 tax credits: Maximizing employer savings

The Credit for Small Employer Pension Plan Startup Costs has been significantly enhanced by the SECURE 2.0 Act. A business may be eligible if it:

• Has 100 or fewer employees who were paid at least $5,000 in the preceding year

• Has at least one plan participant who is a non-highly compensated employee, and

• Hasn’t offered a retirement plan to the same employees in the past three years

Small businesses are incentivized now more than ever to offer retirement benefits. Thanks to the SECURE Act 2.0, qualifying small businesses (1–50 employees) can now receive a tax credit for 100% of startup costs, up to $5,000 a year for three years. The SECURE 2.0 Act also added an employer contributions tax credit, providing an additional credit of up to $1,000 per employee annually (phasing out after 50 employees). 

Imagine that an employer is considering giving her employee a $1,000 raise. That employee would have to pay income and employment taxes on the money, and her employer would also owe FICA taxes (Social Security and Medicare). Since the combined mandatory FICA tax burden is 7.65% for the employee and 7.65% for the employer, the $1,000 raise ends up being significantly impacted by taxes immediately.

On the other hand, if a benefits broker were to help this employer set up a 401(k) and process the $1,000 as a matched 401(k) contribution, that money would grow tax-free until withdrawal. The employer would be able to write off the contribution, and the employee may enjoy preferential tax treatment as their nest eggs grow. Putting extra funds into a matched 401(k) provides tax benefits to both employers and employees. A benefits broker can make all of these tax benefits happen by effectively presenting and implementing a 401(k) plan to an employer.

Key selling points when offering a 401(k) to your clients

• Highlight the advantage of a 401(k) administered by an external party: Small businesses may lack resources. The primary person running a retirement plan may be the same person managing its human resources duties. For employers who can’t afford the expense and effort of bringing retirement investment expertise in-house, outsourcing 401(k) administration makes it possible to offer this benefit. 

• Provide predictable fees to both employers and employees: It’s wise to explore and understand the fees that a 401(k) provider may charge your clients. Some providers may tack on fees for payroll integration, distributions, withdrawals, direct deposit, and deconversions. 

• Emphasize access to more investment options: Your clients are looking for investment options that better reflect their interests. By working with Human Interest, your clients will have access to funds from nearly every major asset class. Unlike other 401(k) providers, Human Interest does not accept kickbacks, so we have no financial incentive to recommend any particular fund.

Outsourcing 401(k) administration to minimize liability

Today, benefits brokers have numerous options to provide a comprehensive benefits package. Hiring an external resource to manage your 401(k) offering plan shifts the liability burden to the outsourcing company, which could help lower your risk and financial exposure.

Managing investment accounts requires not only financial insight. It requires a system for managing the funds, keeping up to date on legal requirements, withdrawing the money each pay period, and a process for employees to access their accounts. 

Being able to meet the unique needs of your customers is key, and a specialized 401(k) provider who delivers custom plan design, flexibility on fund selection, and advisor access can be a boon to your business.

At Human Interest, we deliver on these promises:

• Custom plan design: Tailored plan designs include safe harbor, profit-sharing, vesting, discretionary match, end-of-year match, specific eligibility requirements, and automatic enrollment.

• Tech integration: With multiple new technology solutions for HR on the scene, you can take advantage of payroll integrations and syncs across several external benefits tools.

• Flexibility on fund selection: Employers can provide an open architecture platform that provides access to funds from every major asset class and risk category.

• Advisor access: Financial or HR advisors can manage employee enrollment and offer educational training and investment advising directly on-site or remotely through the advisor portal. Our 401(k) system is payroll agnostic.

• Full compliance: 3(16), 3(21), or 3(38) fiduciary protection, and compliance testing, IRS Form 5500 filing, IRS-approved plan documents, audit package, participant disclosures, and recordkeeping services are all included.