Across the board, employees may have access to retirement plans, but that’s not the case for small businesses. A new small business survey by Nationwide Financial finds that 75% of small businesses agree that so many Americans are financially unprepared for retirement that it has reached crisis levels. However, only one in five of these businesses offer their employees a 401(k) or other employee self-funded retirement plan.
So few small businesses sponsor 401(k) plans for their employees because they need to reach a point of business maturity or critical mass to absorb the cost and administration of the plan.
According to the Harris Interactive poll of 501 small business owners released yesterday, only 11% say they are likely to add an employee-sponsored 401(k) plan within the next two years. That’s because 69% say their business is too small and more than half say it’s too expensive.
It’s not that owners or employees don’t want a plan. In fact, 37% of small business owners with more than six employees say they are under pressure from employees to offer a retirement plan. Seventy-eight percent of these owners surveyed say having a retirement plan is effective in helping to attract qualified employees.
“Our survey found that nearly half (46%) of small business owners were not aware or were unsure that an employee self-funded retirement plan could be offered without having to match employee contributions,” says Anne Arvia, senior vice president of retirement plans for Nationwide Financial. “The provisions in the Small Businesses Add Value for Employees Act before Congress will remove many of the barriers that have kept small businesses from offering their employees a retirement plan.”
Small business owners support concepts proposed in SAVE Act
The SAVE Act encourages small businesses to pool together to offer multiple small employer plans that are much less expensive than single employer plans and simplify an employer’s administrative requirements. It would allow small employers to reduce costs by pooling their resources under a single plan with easier administrative requirements.
According to the survey, 71% of owners say when selecting an employee self-funded plan it’s important that the plan has flexibility to match or not match employee contributions and 62% say it’s important that multiple employers can group together to pool resources and reduce administration costs.
Four in five owners say when selecting a plan it’s important the plan has minimal amount of administration requirements and can be offered at a low price. Three in four owners say it’s important that the plan can be converted to better meet their needs as their business grows.
By encouraging plan sponsors to work within the current defined contribution system, the legislation would extend important fiduciary protections that do not exist with other retirement accounts. It also enables small businesses to easily transition to a traditional 401(k) retirement plan as the business matures.
“There’s a retirement crisis looming and we need to work together to improve access to retirement plans for all Americans,” says Arvia.
