New research from people management platform Gusto shows that employer-sponsored 401(k) offerings dramatically increase employee retention and—even better—pay for themselves several times over in lower staff turnover.

Even more compelling, researchers found that offering a retirement plan can save small-and-medium-sized businesses (SMBs) more than $100,000 annually in reduced employee turnover costs.  

The data from Gusto also revealed that retirement benefits led to better retention across all industries. In fact, employees were 40% less likely to leave during their first year if they were extended retirement benefits. In some positions, that figure jumped to 54%.  

On average, employees with an active 401(k) were also 32% less likely to leave their job in any given month.  

What’s more, most SBMS don’t offer retirement benefits of any kind. Overall, 22% of SMBs on Gusto’s platform extend retirement benefits. Specifically, for businesses with fewer than 10 employees, retirement plans for available to 15% of employees. However, 65% of employers with more than 100 employers were offered access to retirement benefits.  

Offering Retirement Benefits Dramatically Increases Employee Retention

In a recent article, Luke Pardue, an economist at Gusto, explained that the time spent finding new workers can be a time-consuming and expensive endeavor for employers.  

“One of the best ways a company can avoid those costs is by offering a 401(k) retirement plan for its employees,” he wrote. “Our calculations show a 401(k) plan can lead to annual cost savings of more than $100,000 in reduced employee turnover costs alone or a 2x return on the initial costs of offering a 401(k).”

For many working Americans, the importance placed on financial security has always been high; however, this sentiment was further exacerbated during the tumultuous ups and downs of the market due, in large part, to the COVID-19 pandemic.  

As a result, millions of Americans chose to leave their jobs for better-paying positions with competitive benefits packages, resulting in what many refer to as the Great Resignation.

In fact, according to the Pew Research Center, in September 2022 there were two job openings for every unemployed person, and the rate at which workers were leaving jobs for more attractive positions hovered near historic records.  

Additionally, it’s worth noting that more than 40 million employees currently do not have access to retirement benefits. If those workers could access a 401(k) through their employers, they’d be able to save as much as $5.7 trillion in 20 years.

Looking for more exclusive content? Check out what’s trending on the Mployer Advisor blog, and be sure to catch the latest episode of Mployer Advisor’s new podcast “This Week in Benefits.”

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