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Want to retain staff? Increase 401(k) benefits

May 24, 2022
When most employers think of ways to attract and retain employees, compensation is the first thing to come to mind. However, 401(k) benefits could be even more enticing.

Headlines around the world have trumpeted the phrase “the Great Resignation” to illustrate a rapidly changing and suddenly competitive labor market. Eighteen months ago, few of us could say we expected this to happen. Rising wages combined with high quit rates make it much harder for companies to hire and retain employees, and it’s unclear when things will settle down. For now, one thing is certain: the job market is more fluid than it has been in decades.

Even prior to COVID-19, dentists and practice owners would often say they were struggling to retain staff. This trend has only intensified since the start of 2020, making retention more essential now than ever.

So, how can we improve dental practice retention rates? One immediate impulse may be to increase compensation, but there is an alternative solution proven to boost staff satisfaction and, with it, sustained retention: increased 401(k) retirement benefits and participation.

Why 401(k)?

Here’s a great example. An acquaintance of mine recently received a 401(k) match increase from 3%–7% of her pay instead of a conventional pay increase. In real terms, her employer is paying her 4% more per year, but this money is sheltered from tax, so it’s worth more. It’s hard for a competitor to replicate that, so it’s an incentive to stay put.

Also by Scott Puritz:

Dental 401(k) plans: Retire sooner, and avoid costly lawsuits

Cash balance plans: Six-figure tax savings for dentists

Employees who see that their employer cares about them for the long term are far more likely to be satisfied in their role and less likely to leave. A 2018 survey by Willis Tower Watson found that 75% of new hires at a company offering a 401(k) say that a retirement plan provides a compelling reason to stay.1 Offering a better 401(k) not only provides a great way to shelter business and personal income from tax, but also shows that you care about employees’ long-term happiness, stability, and security.

It sounds simple, but what does it take to increase participation and really make the plan come alive?

Education: Make sure your employees know the benefits, not only in terms of your offering, but the tax benefits. When contributions fall or stop, be sure to remind employees that they are essentially losing a benefit, or if you match, free money!

Employee engagement: The more you promote the benefits, the more likely employees are to engage. If you already have a matching 401(k) plan but don’t feel it’s enough, consider profit-sharing. This way, if you have a successful year, you can shelter taxes and reward staff with additional funds in their 401(k).

Reassess current offerings: Profit-sharing is useful for retention, but it also serves as a goal for newer employees. Also look into ways to reduce fees and leave more money in the 401(k) each year.

For many, a 401(k) is seen as a nonfinancial benefit, but really, employees are being paid more and realizing a significant tax savings. Most 401(k) plans don’t match right away, so be sure to talk up the plan to keep people on board until they can join. If you have a good plan, it’s unlikely that other employers will be able to provide such generous terms to potential recruits.

If attracting employees is the problem, consider offering a 401(k) match, increasing an existing match, or offering the benefit earlier in their service. Employees may shop around for higher salaries, but a competitive retirement plan may mean that you can offer lower salaries in lieu of the benefits.

New plans offer advantages

If you aren’t in the position to match 401(k) contributions or even offer a plan, look at some of the newer offerings on the market. Legacy 401(k) plans offered through payroll providers can come with fees between 1.5%–3% annually, while newer, more modern plans have fees of 0.7%. A serious reduction in fees means that modern plans are more affordable, but also that employees have even more in their 401(k) at the end of each year, compounding into the future.

Furthermore, newer plans include education for employees and reporting and management tools. Many of these services come as an additional cost on older plans.

Finally, newer plans can act as the fiduciary for your 401(k) offering, which means that the provider, not the owner of the practice, takes on the long-term financial risks of managing the plan. If the word “fiduciary” is new to you, read my article called Dental 401(k) plans: Retire sooner, and avoid costly lawsuits. Even if you have a 401(k) plan with high participation in place, be sure to do a fee check! Reducing your fees to below 1% is possible with new plans.

Editor's note: This article appeared in the May 2022 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.


  1. Working late: managing the wave of U.S. retirement. WTW. December 19, 2018. https://www.wtwco.com/en-US/Insights/2018/12/working-late-managing-the-wave-of-us-retirement

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