According to a survey published by Nationwide in November 2011, small businesses aren't offering the kinds of financial planning products and services needed by employees to help them save for retirement. Approximately three-fourths of American workers haven't saved enough money for retirement. The survey concludes that lack of preparation for retirement by a rapidly aging workforce constitutes another form of financial crisis. Only one in five small businesses offers employees a retirement plan, such as a 401k savings program.
Economists consider small businesses as the engine of economic growth. The U.S. Small Business Administration reports that high growth and small businesses account for about 99.7% of all employers. Small companies also employ 50% or more of all employees in the private sector and pay about 44% of the private sector payroll. In addition, small businesses:
- Created greater than 65% of the net number of new jobs since 1991
- Generated 50% plus of GDP in the non-farm, private sector
- Employ about 43% of high technology employees (including engineers, computer science/programmers, and scientists)
- Comprise approximately 98% of exporters, producing about 31% of fiscal year 2008's export value
- Develop 1300% greater patents per employee than their larger competitors
- Reside in home offices (about 52%); approximately 2% work in franchise operations
Small business owners say that offering employee benefits, such as 401k savings programs, cost too much money. They want to offer retirement savings plans in the future, when the business matures or when the economy improves.
Harris Interactive's polling of small businesses concurs with Nationwide's results. According to Business Wire, 501 small business principals with up to six employees say that offering employee benefits like retirement plans is too costly in 2011. Approximately 37% said they are "under pressure" to offer a retirement savings vehicle such as a 401k program. About 78% of these employers believe that a retirement plan is an important benefit to offer new employees.
Nationwide's poll found that almost half of small businesses don't understand the costs associated with the establishment of a retirement savings plan, such as a 401k. Although some employers offer matching funds, the rules associated with maintaining a qualified 401k plan don't require employer contributions.
The proposed "Small Businesses Add Value for Employees Act" under Congressional consideration wants to help small businesses and employees preparing for retirement.
The Proposed SAVE Act
Small businesses could collaborate and work together under the proposed SAVE Act. By working together, small employers could offer better employee benefits plans at a lower cost. Reducing the administrative load now placed on the employer’s shoulders could also assist small businesses in offering employees much-needed retirement savings plans.
Almost three-fourths of the employers polled say that selecting a flexible employee benefit plan (with or without the need to match employee contributions) is crucial to deciding to offer the benefit. More than 60% of the employers believe that pooling groups of small employers can help to reduce costs of offering important benefits plans. Almost 80% of the employers report that the time and costs spent to administer any employee benefits plan is one of the most important factors in the decision-making process. Almost all respondents believe that the cost of offering these plans relies upon selecting a low-cost, flexible plan.
For those businesses with employee benefits programs like retirement plans already in place, about 75% of the principals say that converting to lower-cost, flexible plans offered as a result of the SAVE Act would be beneficial.
Conclusively, almost every small business owner surveyed believes in the importance of addressing the lack of employee retirement savings. Helping workers plan for retirement, and helping all workers save for a variety of needs, is important to business owners.