Does the 401K Exist in Spain?

Looking for the 401K in Spain? The employment pension plan is its equivalent: same tax benefits, employer contributions, and joint retirement savings. Discover how it works and how to access it.

1. The 401K's Connection with Spain

Remote work has accelerated the delocalization of workers, increasing the number of Spanish workers employed by American companies. It is increasingly common to find cases where employees work for companies headquartered in any US state without needing to permanently relocate. For this reason, employers who may not be familiar with the Spanish labor market need to understand common practices. Similarly, Spanish citizens are becoming familiar with the practices of American employers. The 401K savings plan is no longer unknown.

Although not all American companies offer the 401K, it is common practice. 401K plans are retirement plans exclusively for active employees. This product has traditionally been discussed among Spanish expatriates who, having permanent residence in the United States, have seen the value in this system designed to help employees save for retirement. Companies are not required to offer it; however, it has become one of the most valued benefits by the workforce.

The employee determines how much of their salary they wish to invest in their plan account each pay period. The value the employee receives is the additional matching contribution the company makes in proportion to the worker's contribution, which depends on the policy set by the company. In fact, it is estimated that 75% of companies match their employees' contributions.

2. What Can a Company Do If It Wants to Open a 401K in Spain?

Strictly speaking, the 401K does not exist in Spain, as it is a concept created under the US federal pension code. However, the employment pension plan is the most suitable equivalent. Here's why.

Both the 401K and employment pension plans can only be contracted by employees if offered by their company. American plans have a greater variety of investment options compared to Spanish pension plans, since being a product that less than 1% of Spanish companies offer, banks and insurers have had no interest in improving the offering.

Both enjoy favorable tax treatment, only accessible through the relationship between the contracting company and the employee working for it. What it does is defer taxation until retirement, allowing returns to be generated on that money. For the employee, the company's contribution adds value as it allows savings to grow thanks to those joint contributions accumulated over time.

Here you can find information about all the features of the employment pension plan.

3. Why Is Employment Pension Plan Adoption in Spain Lower Than the 401K in the United States?

Several factors have made pension plans a less common option among company benefits, despite being one of the most valued proposals by employees.

• Savings culture: Managing personal finances is still a pending subject for many Spaniards. Additionally, planning for retirement is not a priority due to dependence on the public pension system, which generates a false sense of confidence.

• Unattractive investment: According to Inverco data, 80% of money deposited in pension plans has not beaten inflation over the last 20 years. The banks managing the capital have not met the expected return on investment for savers, but they have applied high fees that have recently had to be limited by law.

• Lack of information: There is a lack of trust in the banking system among citizens. Companies, even if familiar with the tax advantages of employment pension plans for the organization, see the administrative burden as an obstacle to offering them to employees.

At Arca, we have changed all this and more. Finally, an easy way to open and manage an employment pension plan with the lowest fees for savers thanks to passive management.

Schedule a free demo now and we'll show you how to start offering employment pension plans to your team.

Additionally, thanks to our work with the best payroll software and accounting firms, you can further optimize your team's compensation without it being a burden for you.

It has never been easier to offer your own social security system to your workforce. Start now with Arca!