As more workers lean on their employer for financial wellness offerings, a new study by Capital Group reveals small businesses are less likely to offer a retirement plan than large organizations, and likely due to misperceptions surrounding cost.
Capital Group surveyed over 600 small business owners and their employees, finding that only 28% of businesses with less than 10 employees offer retirement plans and 51% of organizations with 10 to 24 employees provide a plan.
Perceived ideas of cost were a main factor for not offering a retirement find, Capital Group says, as more than a third of small businesses (34%) cited plan expense as their main concern. This was followed by 33% who said their company was not big or stable enough, 26% who cited limited administrative resources, 25% with too few employees or too high of a turnover rate, 21% who said it was too risky, 20% who believe there is a lack of employee interest, and 19% who aren’t sure where to start.
When asked where they will go for more information about setting up a plan, Capital Group research shows small business owners ranked family, friends, and social media (31%, 31%, and 24% respectively) before seeking guidance from a financial advisor (15%). As a matter of fact, only 39% of business owners without a plan reported even having a financial advisor.
“Offering a retirement plan to one’s employees can be a critical asset for a business owner who wants to retain and attract new talent, but concerns about cost and a lack of sufficient guidance are holding many of them back,” said Renee Grimm, senior vice president of retirement plans at Capital Group, in a statement. “With the passing of the SECURE 2.0 Act earlier this year, now may be a great time for small business owners to set up a retirement plan. A financial advisor can guide business owners on how to maximize the full benefits of offering a plan, including important tax credits for themselves.”
Inflation remains largest financial challenge
Capital Group’s survey found that both business owners and employees cite inflation as the biggest factor impacting finances in the past three to six months, followed by the rising cost of fuel, the COVID-19 pandemic, and healthcare costs.
Seventy-one percent of business owners who offer a retirement plan say inflation was their employees’ largest financial challenge, with 79% of employees agreeing. Only 28% of owners who don’t offer a plan understood inflation/cost of living to be the primary factor impacting their employees’ finances, compared to the 81% of employees who reported this as their biggest challenge.
401(k)s lead as most popular retirement account
A 401(k) plan was found to be the most sought-after retirement plan offered by small business owners at 88%, followed by a SIMPLE individual retirement account (IRA) at 30%, suggesting that business owners aren’t aware of the latter as an affordable solution, says Capital Group in its research.
Almost all (94%) of small business owners who do not currently offer a plan say they would be open to one if the company were to receive startup plan tax incentives or credits.
SEE ALSO:
- Americans Say They Won’t Have Enough Savings for Retirement
- Workers and Retirees Report First Dip in Retirement Confidence Since 2008 Recession: EBRI
- How Much a 65-Year-Old Retiring in 2023 Needs to Cover Healthcare Costs
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
