3 Reasons Small Businesses Should Consider Offering a Retirement Plan
Many small companies don't offer a retirement plan. In fact, two-thirds of the 32 million U.S. private-sector employees without a workplace retirement plan work for companies with fewer than 50 employees, according to a 2015 study by consulting firm Oliver Wyman.
The reasons given for not offering a plan are varied: the cost (47 percent), prioritization of other employee benefits (24 percent), and significant use of temporary labor (20 percent).
Despite the many reasons for lacking a plan, there are even better reasons to consider providing one to employees. Here are three key reasons small businesses should consider offering a retirement plan:
1. Your employees need it.
Nearly 55 million workers don't have an employer-based retirement savings plan, particularly those who work for small companies, as well as many younger workers, minorities, and low- to moderate-income earners. Unless these individuals somehow catch up, many of them will be relying solely on Social Security benefits, which are designed to only replace about 40 percent of someone's pre-retirement income.
2. You will stand out from competitors.
In today's tight job market, providing traditional employee benefits such as a retirement plan and health insurance can set a small business apart from its competition. The Bureau of Labor Statistics found in its latest employee benefits survey that only 45 percent of firms with less than 100 employees offered a retirement plan, compared to 95 percent of firms with 500 or more employees. As companies struggle to find ways to recruit and retain workers, offering a retirement plan can be one solution.
3. It's not as expensive or as cumbersome as you may think.
Small companies have several retirement plan options, from SIMPLE IRAs to traditional 401(k)s. Each comes with its own features and tax-saving benefits to employees who contribute. Though there are costs to setting up a retirement plan, the costs can start at just a few thousand dollars depending on the type of plan you choose. Keep in mind that businesses also get tax deductions for contributing to their employees' retirement accounts.
It also doesn't have to be a major time commitment. To find the best retirement plan for your business, it's smart to work with a knowledgeable financial advisor who can evaluate your options and help you decide which makes the most sense for your situation. In fact, the Oliver Wyman study found that small companies that worked with financial advisors were 50 percent more likely to set up a retirement plan, while micro-businesses with fewer than nine employees were almost twice as likely to.
Attract and retain top talent to your business, help current employees save for their future, and enjoy potential business tax savings — all with a retirement plan.