With Workforce Retention at the top of many leader’s minds keeping a team together after economic recovery could be “Benefits” driven issue. Yet small business owners often find that funding retirement is difficult to do and as a result could experience higher than normal turnover.
In response to a looming crisis in worker retirement preparation, a recent study by Nationwide Financial reports that three in five small business owners say the retirement plan they offer their employees should allow them to reduce costs by pooling their resources under a single plan.
The survey also finds that 75 percent of small business owners agree that so many Americans are financially unprepared for retirement that it has reached crisis levels. However, only one in five (19 percent) of these businesses offer their employees a 401(k) or other employee self-funded retirement plan.
The study reports that there is a retirement crisis looming financial industries and Congress need to work together to improve access to retirement plans for all Americans.
So few Small Businesses provide their employees access to an employer-sponsored 401(k) plan because small businesses need to reach a point of business maturity or critical mass to absorb the cost and administration of the current 401(k) retirement plan.
According to the Harris Poll of 501 small business owners released today, only 11 percent say they are likely to add an employee sponsored 401(k) within the next two years. That’s because 69 percent 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 percent of small business owners with more than six employees say they are under pressure from employees to offer a retirement plan. Four in five (78 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 percent) 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,” said Anne Arvia, senior vice president of retirement plans for Nationwide Financial. “The provisions in the Small Businesses Add Value for Employees (SAVE) 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 (MSEP) that are much less expensive than single employer plans and simplify an employer’s administrative requirements. H.B. 4742, sponsored by Ron Kind (D-WI) and David Reichert (R-WA), allows small employers to reduce costs by pooling their resources under a single plan with easier administrative requirements.
According to the survey, 71 percent of owners say when selecting an employee self funded retirement savings plan it’s important that the plan has flexibility to match or not match employee contributions and 62 percent 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.
“The SAVE Act is an important step toward improving the lives of American workers who don’t have access to an employer-based retirement plan,” said Arvia.
Arvia said the SAVE Act legislation will aid small businesses and their employees by:
Improving Access – The SAVE Act encourages small businesses to pool together to offer Multiple Small Employer Plans (MSEP) that are much less expensive than single employer plans and simplify an employer’s administrative requirements.
Fiduciary Protection – By encouraging plan sponsors to work within the current defined contribution system, this legislation extends to millions of Americans 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,” said Arvia. “Nationwide strongly supports initiatives like the SAVE Act that will help increase the retirement security for all Americans.”