Small Businesses That Offer a 401(k) Keep More of Their New Hires

Key findings

• Small businesses that offer a 401(k) see about 8% fewer first-year quits than otherwise-similar businesses that don't, and in higher-paying fields the edge runs as high as about 15%, narrowing to a couple of points in lower-wage, higher-turnover work.

• Counting only the turnover it prevents, a 401(k) can often more than pay for itself for new hires. Growing companies can cover the cost of the plan through lower turnover alone — even before tax credits and the other non-monetary benefits a 401(k) brings.

Introduction 

Gusto data shows that small businesses that offer a 401(k) are able to retain more of the people they hire. Comparing otherwise similar firms, matched on size, industry, pay, and region, those that offer a retirement plan see about 8% fewer new hires leave during their first year than firms without a retirement plan.

To estimate this relationship, we analyzed Gusto payroll records from over 500,000 small businesses across the country and for workers hired between 2020 and 2025, following each employee through their first twelve months on the job. We matched businesses that offer a 401(k) with otherwise similar businesses that do not, then compared first-year retention among their new hires.

The relationship was consistent. We found the relationship to be positively correlated across every hiring year since 2020 and across more than a dozen industries. While this is an observational analysis—not proof that offering a 401(k) alone causes higher retention—the association is robust and consistent across a wide range of businesses.

8% fewer new hires quit in year one when a business offers a 401(k)

Losing a new hire is expensive. When an employee leaves within their first year, the hiring process starts over: employers have to recruit, interview, hire, onboard, and train a replacement—all while the role remains vacant and productivity suffers. Anything that reduces turnover saves small businesses both time and money.

The chart below shows how much lower first-year turnover is among businesses that offer a 401(k) compared to businesses that do not. The retention advantage appears every year that we analyzed. The effect was largest in 2021 and 2022, when the labor market was exceptionally tight and workers were quitting at record rates, but the relatioship remains strong in 2025. 

The edge was largest in exactly the years when keeping people was hardest, however even as hiring conditions have normalized, businesses offering a 401(k) continue to have nearly 10% lower attrition for the people they hire during their first year than otherwise similar businesses without a plan.

The persistence of the relationship suggests the benefit is not simply a product of an unusually hot labor market. Whether or not workers had abundant outside options, businesses offering retirement benefits consistently retained more of the people they hired.

The retention edge appears across industries—with gains as high as 15%

The association between offering a 401(k) and lower first-year turnover isn't confined to a handful of industries. Across all twelve industries we examined, employers that offer retirement plans retained more of the people they hired than otherwise similar employers without a plan.

The size of the advantage varies. Employers in the information (Tech), and transportation sector saw the largest reductions in first-year turnover, roughly 14–15%, fewer first-year quits. Professional services, manufacturing, construction, and finance also experienced meaningful improvements, while industries with traditionally high turnover, such as accommodation and food services, saw smaller differences.

The consistency of the pattern is the important finding. Whether comparing software companies, trucking firms, manufacturers, restaurants, or retailers, employers offering a retirement plan consistently retained more of their new hires. The retention advantage wasn't limited to a particular type of business—it appeared across the small business economy.

Does a 401(k) pay for itself? 

Offering a 401(k) isn’t free, the match plus an admin fee all costs money. So the real question is whether the retention it buys is worth it?  To answer that question, we focus on just one source of value: lower turnover. Set aside everything else a 401(k) does for a business—attracting talent, boosting morale, and more—and count only the turnover it prevents.

We estimate how much businesses save by retaining more of the people they hire and compare those savings with the cost of offering a typical 401(k). This deliberately ignores every other benefit a retirement plan may provide—such as recruiting stronger candidates, improving employee satisfaction, or helping workers prepare for retirement. Even on that narrow math, the plan covers its own cost on the very first hire you put on it.

For an illustrative small business paying an average salary of about $66,000 and offering a standard 4% safe-harbor match, the math is straightforward. Offering a 401(k) is associated with a 3.7 percentage point reduction in first-year turnover.  With replacement costs estimated at roughly 1.3× annual pay, about the midpoint of published estimates, which includes recruitment costs, lost productivity, and the time to onboard and train a replacement. This reduction translates into an average of about $3,200 in expected avoided turnover costs per new hire. 

Against those savings, the plan costs about $2,770 per enrolled new hire: roughly $2,640 (assuming the employee contributes enough to receive the full match) in employer matching contributions plus $130 in administrative fees.

• Expected turnover savings: ~$3,200

• Plan cost: ~$2,770

• Net benefit: ~$430 per new hire

• Return on investment: +16%

Conclusion

Across six hiring years and all twelve industries examined, the pattern held: small businesses offering a 401(k) kept more of the people they hired, about 8% fewer first-year quits than similar firms without a 401(k) plan, and as much as 15% in some industries. And on turnover alone, the plan tends to pay for itself in the first year, returning roughly 16% before tax credits.

For a small business weighing the cost, the retention it buys may cover the plan by itself in many cases, with everything else it offers employees as additional upside. 

Methodology

We drew on Gusto payroll records covering more than 500,000 small businesses nationwide and their new hires from 2020 through 2025, following each hire through their first twelve months. A business counts as "offering a 401(k)" once at least two employees are enrolled in or contributing to a Traditional or Roth plan; the outcome is a voluntary quit within a year of hire.

To estimate the effect, we compared first-year quit rates at offering and non-offering firms, controlling for confounders two ways. The headline figure uses coarsened exact matching: we sort every firm-year into buckets defined by hire-year, size, industry (NAICS), region, and pay tercile, then, within each bucket, take the hire-weighted difference in first-year quit rate between firms that offer a plan and those that don't. Averaged across buckets, that gap is 3.7 percentage points — roughly 8% off the ~47% baseline at non-offering firms (high because small businesses skew hourly, lower-wage, and higher-churn) — with about 98% of hires on common support. As a check, a hire-weighted linear-probability regression of first-year quit on an offering indicator and the same controls — size, industry, pay, region, hire-year, and firm age — with standard errors clustered by company, puts the effect at 4.5–4.7 percentage points, consistent with the match. The estimate is an association among comparable firms, not proof of cause, and probably conservative: a plan run through an outside recordkeeper looks plan-less in our data.