The private retirement plan industry knows it has a coverage gap that needs to be addressed, and further evidence that the gap exists is out today with findings from the first-ever Small Business Retirement Index from Fidelity Investments.
Fidelity found that only one-third (34%) of small employers currently offer retirement savings plans to employees, illustrating that there’s a huge opportunity for small employers to offer competitive retirement benefits—and for 401(k) advisors to help make it happen.
Of those that do not offer a plan, almost half (48%) in the new Fidelity research say they do not believe they can afford one—a concern many provisions in the SECURE 2.0 legislation were created specifically to address. Other small business owners feel they are too busy running their company to focus on it (22%) and an equal amount (21%) don’t know how to start the process of offering a retirement plan. With nearly half of all U.S. employees working for a small business, this could leave many individuals unprepared for the future.
“Small business owners are faced with so many challenges as they grow their business, from finding new customers to identifying their next round of funding,” said Andrew Schreiner, senior vice president, small business retirement at Fidelity. “While offering a retirement benefit can feel like a potentially expensive and overwhelming task, there are many retirement saving solutions available for companies of all sizes. In addition to helping their employees establish a secure financial future, a retirement benefit also can have an enormous impact in attracting and retaining top talent.”
When asked what keeps them up at night as small business owners, 54% of respondents said they are most worried about inflation when it comes to running their business, and 37% are worried about employee attraction, retention and well-being.
In a tight labor market where small business owners are forced to compete with larger competitors on compensation and benefits, it’s not surprising that 73% of small business owners said they believe they can’t compete with larger companies.
Even when it comes to their own retirement, 83% of small business owners know they should be saving more for their futures, but 59% aren’t sure how to maximize their retirement savings.
Concerns mount among microbusiness owners
Those who are self-employed or are running microbusinesses (with fewer than 10 employees) are most likely to say they cannot afford to offer a retirement plan (71%), which helps explain why 55% of these employers do not currently offer a retirement plan and do not plan to do so. While most agree that employees expect to be offered retirement benefits, the vast majority (82%) feel they can’t compete on benefits with larger companies.
When it comes to their own retirement savings, 85% of self-employed/microbusiness owners know they should be saving more for retirement, 75% aren’t sure if they are saving enough, and 42% worry they will never be able to retire. When asked what’s preventing them from saving more, the most common response is that they only earn enough to cover their expenses (42%).
“Self-employed individuals are carrying the entire weight of their business’ success on their shoulders,” says Roger Morrisette, Fidelity’s vice president of small business retirement products. “Understandably, many feel they do not have the time or resources to administer a retirement savings plan. The good news is there are many options available. Whether you have one employee or 100, there are affordable, flexible solutions for businesses of all sizes.”
Additional findings from Fidelity Investment’s 2023 Small Business Retirement Index can be found here, and resources on retirement options for small businesses can be found here.
SEE ALSO:
• Reish Highlights ‘Remarkable’ Government Incentives in SECURE 2.0
• State-Mandated IRAs Not Crowding Out Private 401(k)s: Pew Research