Many Small Businesses Don’t Understand Retirement Plan Options

401k, small business, confusion, retirement plans

They've got questions.

Small businesses are an essential part of the American economy. They spark innovation, drive competition and employ many people.

In fact, from 1998 through 2014, small companies accounted for two-thirds of new jobs created in the United States and almost half of all the goods and services produced.

Here’s the rub: Many small businesses do not sponsor retirement plans. It’s a serious issue.

This is so even though small businesses employ almost half of working Americans, and workplace retirement plans are the second most important source of retirement income after Social Security.

Why don’t small businesses sponsor retirement plans?

Data source: 2018 Millennium Trust Small Business Retirement Survey

Millennium Trust wanted to examine why small businesses do not sponsor retirement plans, and last year the 2018 Millennium Trust Small Business Retirement Survey exclusively interviewed small businesses without retirement plans.

Company owners who participated in the survey agreed Americans will not have enough money saved for retirement.

Many believed employees would save more for retirement if they had access to workplace plans, but that hasn’t inspired them to offer one.

Their reluctance may be overcome by addressing perceptions and obstacles that have impeded plan adoption. As indicated in our survey results, these include owners’:

Thirty-three percent of employers were willing to pay $20 per employee annually, 29% were willing to pay $50 per employee and another 14% were willing to pay up to $60.

The survey also interviewed employees. A majority said access to a retirement plan was important when choosing a new employer (88%) and was a key consideration when deciding whether to stay with an employer (83%).

Don’t assume small business owners understand all of the options available

There is a clear need to educate smaller employers about retirement plans. Many do not understand that affordable options designed specifically for small businesses are available in the marketplace. By adopting a plan, an employer may improve its ability to attract and retain top talent, while also improving retirement security in America.

When a 401(k) isn’t the right fit due to size or cost, remember there are other options. These include:

Small businesses are the front line of the retirement crisis. Helping them meet the challenge will require a retirement system that offers diverse plan options and maximizes the likelihood every employer finds a plan suited to its needs.

NOTE: The 2018 Millennium Trust Small Business Retirement Survey was conducted among 500 decision-makers at companies with less than 150 employees that do not offer any type of retirement savings option, and 500 employees who are working full-time at employers with no retirement savings option between September 28-October 8, 2018. The survey was commissioned by Millennium Trust Company and conducted by CITE Research.

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