IRA Provider Insights

Why Don't SMBs Offer Retirement Plans & What Would Change Their Minds?

Posted by Dana Sheehan on Feb 6, 2017 9:08:27 AM

When I was a recent college graduate who had gotten her first “real job” in 1999, I received some solid “real world” advice: start saving for retirement now. I saw the projected numbers, and at 22 years old I was ready to start putting money aside, but the small business I worked for didn’t offer a retirement plan. That first year my salary was less than $20,000, I was newly engaged and my money was directed towards a wedding and an apartment. Even with the best of intentions, taking a portion of my paycheck and setting it aside simply didn’t happen.

In a turn of good luck, a few months into my employment a 401K was made available to all employees. I maxed out my contribution amount, felt good about being a responsible adult, and have been saving ever since. 

Retirement-planning-compressor.jpgMost Americans fall into the same trap - without that automatic withdrawal of funds, they don’t save for retirement. A recent study by the Pew Charitable Trust reports that employer-sponsored opportunities to create a retirement savings exists for only 60% of full-time working Americans.

This is most felt in smaller businesses. According to the Bureau of Labor Statistics, more than half of businesses with fewer than 100 employees don’t offer retirement plans to their employees.

To find out more, the Pew Charitable Trust published Small Business Views on Retirement Savings Plans this month. The reasons why small- and medium-sized businesses don’t provide a retirement plan option are mainly because of cost. Expenses and lack of administrative resources (which essentially equates to cost) are the biggest barriers. Another factor is a lack of interest from employees.

What needs to happen to make smaller businesses provide their employees with plans for retirement savings? The number one thing is increased profits, followed by financial incentives through tax credits, and an increased demand from employees. It seems that if businesses start improving financially, those improvements will be passed into to their employees in the form of added retirement benefits.

This survey was taken between April and June of 2016, before President Trump took office. Increasing American business growth is high on his administration’s list of priorities and he promises to “create 25 million new American jobs in the next decade and return to 4 percent annual economic growth,” according to www.white If that’s the case, it looks like many more Americans will soon be able to take advantage of employer-sponsored retirement programs and create more secure financial futures for themselves.

Next week I’ll continue to break down the Pew study and take a look at auto-IRAs.

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Topics: Retirement Plans