2 In 3 Small Businesses Don’t Offer 401(k)s: Will SECURE 2.0 Help Move The Needle?

Many small business owners are struggling to provide retirement savings benefits, a new study from Fidelity has found. The firm’s 2023 Small Business Retirement Index found that almost half (48%) of small business owners say they cannot afford to offer a retirement plan. Only one-third (34%) offer some form of retirement benefits to employees.

The report comes at a time when businesses are competing fiercely for workers, and the lack of retirement benefits is seen by many as a major disadvantage for small business owners.

“Small business owners are faced with so many challenges as they grow their business, from finding new customers to identifying their next round of funding,” said Fidelity’s Andrew Schreiner, senior vice president, small business retirement. “While offering a retirement benefit can feel like a potentially expensive and overwhelming task, there are many retirement saving solutions available for companies of all sizes. In addition to helping their employees establish a secure financial future, a retirement benefit also can have an enormous impact in attracting and retaining top talent.”

The study is based on a survey conducted in March, among 504 owners or partners of U.S. companies with 99 or fewer employees.

A pressing concern, and worse among the smallest companies

The survey outlined that small business owners definitely want to offer such benefits. In the report, 63% of employers said offering a retirement plan is the right thing to do for employees. More than half, 53%, said their employees expect and appreciate retirement savings plans, and a similar number, 51%, said such plans are an attractive benefit to recruit talent.

The study also found that the smaller the business, the more of a problem the lack of retirement benefits can be. The survey found that the self-employed business owners or microbusinesses—those with fewer than 10 employees—have the biggest concerns in this area. The report said that 71% of self-employed/microbusiness owners said they feel they can’t afford to offer a retirement savings plan. A large number—82%–said they can’t compete with larger companies when it comes to benefit offerings. And 55% said they do not currently offer a retirement plan, nor do they plan to do so.

Overwhelmed and uncertain of their options

The study also found that smaller businesses are reporting that they don’t have the bandwidth or resources to deal with some of these benefit issues. Of those that don’t offer retirement benefits, 22% said it was because they are too busy running their company, and 21% said they don’t know how to begin the process.

Other issues are also a concern: when asked what was keeping them up at night, 54% of small business owners said the impact of inflation on their business, and 37% said employee attraction, retention, and well-being.

The Fidelity report concluded that there are a number of affordable options for small business owners, including Self-Employed 401(k)s, SEP IRAs, Simple IRAs, and Pooled Employer Plans.

Roger Morrisette, vice president of small business retirement products at Fidelity, said that these self-employed or micro-business owners do have options. “Self-employed individuals are carrying the entire weight of their business’ success on their shoulders,” says Roger Morrisette, vice president of small business retirement products. “Understandably, many feel they do not have the time or resources to administer a retirement savings plan. The good news is there are many options available. Whether you have one employee or 100, there are affordable, flexible solutions for businesses of all sizes.”

Will SECURE 2.0 make a difference?

The Fidelity findings are not very different from research by the Capital Group, which found in a separate survey that only 28% of businesses with fewer than 10 employees offer retirement plans, and only 51% of businesses with 10-24 employees offer them.

According to Ralph Haberli, head of institutional retirement at Capital Group, said that recent efforts on the state and federal level to help small businesses are an important step forward.

“The passing of the SECURE 2.0 Act will remove the last barriers for many [small businesses], enabling employers and the retirement industry to come together to help more Americans save for retirement,” Haberli said. “Additionally, while 12 states have enacted legislation requiring small businesses to offer retirement plans, there appears to still be low awareness of the range of affordable solutions available, including SEP and SIMPLE IRAs.”


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