Small businesses are not just a part of the economic landscape of the United States, they are its lifeblood, and according to the U.S. Chamber of Commerce have created 63% of all new jobs created since 1995.
However, a stark contrast exists in retirement plan accessibility between large and small enterprises. While nearly all large corporations offer 401(k) plan benefits, a significantly lower percentage, at most just 24% of small businesses with fewer than 50 employees (excluding the self-employed), provide these essential retirement savings. This disparity has profound implications for millions of Americans as it can leave them inadequately prepared for their golden years.
Misconceptions about the employee size needed to offer a 401(k), unawareness of tax credits, and cost of implementing retirement plans have hindered small business owners from offering these vital benefits. A prevalent myth is that 401(k) plans are exclusively for larger companies.
In reality, even the smallest businesses including the self-employed can reap the rewards of offering such plans, including tax advantages, higher contribution limits, Roth 401(k), and employee loan options. Thanks to the Secure Act 2.0, which was enacted to provide significant tax incentives for small businesses, offering 401(k) plans can be nearly cost-neutral, providing a secure and affordable option for businesses.
Additionally, many believe employer matching contributions are mandatory, deterring some from offering plans altogether. While matching can be a valuable employee incentive, it is not a requirement for establishing a 401(k). Know that tax credits and tax deductions can help offset these costs for small businesses that do provide an employer match.
Furthermore, concerns about the financial burden of administering a retirement plan have discouraged some small business owners. However, the landscape has evolved with the emergence of affordable options tailored to the needs of small businesses. For instance, administrative costs for a 10-employee company can be less than $100 per month and tax credits and deductions apply here, too. This affordability should reassure small business owners that offering a retirement plan is within their financial reach.
“By dispelling these myths and highlighting the availability of cost-effective solutions, it becomes evident that offering a retirement plan is attainable for most small businesses.”
Moreover, by carefully selecting providers that offer low-expense investment options with a focus on index funds, businesses can effectively manage overall plan expenses for all employees. All-in investment expense including fund expense ratios can easily be managed well under 1%, so more of each employee’s money stays invested in the markets.
By dispelling these myths and highlighting the availability of cost-effective solutions, it becomes evident that offering a retirement plan is attainable for most small businesses. Doing so benefits employees by providing a pathway to financial security and enhances a company’s reputation as an attractive employer. To bridge the retirement savings gap, removing the obstacles preventing small businesses from offering these essential benefits is imperative.
SEE ALSO:
• Small Businesses Still Avoid Offering Retirement Plans
Stuart Robertson is the CEO of ShareBuilder 401K. ShareBuilder 401k is committed to empowering the self-employed, small businesses, and mid-size companies with easy to use, full service, and cost-effective retirement solutions to help them achieve financial security.
