Small businesses recognize the benefits of 401(k)s — but don’t always invest

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Small businesses are increasingly recognizing the importance of 401(k) plans in attracting and retaining talent, according to a report from Capital One Advisors Spark 401k. But there are a number of barriers that are keeping them from investing in those retirement vehicles.

The national survey of 500 small business owners found that 94% said a 401(k) offering drove recruitment and retention, while half (52%) of employers said it helped attract better quality employees, according to Spark 401k’s Small Business Retirement Planning Index. Similarly, 27% of small business owners with less than 50 employees said employee demand played a role in offering a 401(k) plan, up from 20% in 2013.

While those numbers are encouraging, says Stuart Robertson, president of Capital One Advisors 401k services, which manages Spark 401k’s suite of all-ETF 401(k) plans, “it’s clear misperceptions and myths are preventing many owners from starting a retirement plan.”

The survey showed that 59% of owners who don’t offer 401(k) plans believe their business is too small to set one up, 22% say they can’t afford matching contributions, and 16% believe plan costs are too high. Nearly half (47%) of all small business owners are saving less than 10% of their income for retirement, with a quarter saving nothing at all.

“We want every business owner, including the self-employed, to know that no business is too small for a 401(k), contribution matching is not required and low-cost plans are available,” Robertson says.

Spark 401k offers 20 index funds and five model portfolios, from stable conservative to aggressive, to help both small business owners and employees pick a low-cost retirement savings vehicle that works best for them, Robertson says.

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The investment advisory firm uses both active and passive strategies to help employees — and employers — save more efficiently.

From a business standpoint, employers who lose employees due to a lack of benefits, particularly a 401(k), pay about a quarter of an employee's salary to replace her, according to the index. Nearly half (48%) of small businesses surveyed said they lost employees due to, in part, a lack of retirement benefits, according to the index.

“The common perception’s that small businesses aren’t getting 401(k) plans because they’re complex and costly,” says Robertson. “Actually these bigger misconceptions have been holding small businesses back.”

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Retirement planning Retirement income Retirement benefits 401(k)