What Keeps Small Businesses From Starting a 401(k)?

By Ben Mosebach

Small businesses are a vital part of the domestic and global economy. Even with their tremendous influence in market they continue to have trouble starting retirement plans for their employees. Small businesses also employ nearly a third of the workers in the United States. This means that a substantial number of Americans don’t have retirement plans set up nor are they financially prepared for when they stop working.

The reasons for setting up a retirement plan are quite beneficial to both the business and employees, such as attracting long-term talent and increasing productivity. But there are also a few reasons that are more myth than real that small business owners use to justify not offering one.

Offering a 401(k) Isn’t Worthwhile if I Don’t Have a Certain Amount of Employees
There is no business small enough that wouldn’t benefit from a retirement plan. Even sole-proprietors can take advantage of several benefits of a 401(k), as a retirement plan can help a business of any size. Aside from tax benefits, offering a retirement plan provides:
- Emergency access to funds through a loan
- High contribution limits
- Roth 401(k) options that can help the business and employees in different ways

My Business Can’t Afford to Match Contributions Many businesses think that offering a 401(k) plan means they will have to match their employee’s contributions to a certain point. The reality is that businesses are not required to match funds to their employee’s 401(k) plan. This shouldn’t discourage management or business owners from considering a retirement plan to offer to their workers. The mutual benefits of having a 401(k) plan or profit sharing can mean lower employee turnover and happier workers overall.

These reasons are easy to think about when starting a retirement plan for your employees, and making the decision not to offer one. When you dispel this information it’s easier to see that any business, no matter the size, can offer a compelling 401(k) retirement plan and see the benefits of it almost immediately.