Why Most Small Business Owners Don't Offer 401k Benefits
CHICAGO, IL, May 19, 2007 -- A recent survey by online payroll service SurePayroll finds that 71% of small business owners do not offer 401k retirement benefits to their employees, based on the belief that 401k benefits are incompatible with small business.
The survey suggests many small business owners view 401k plans as too costly and impractical to implement, and are not aware of the importance of 401k or 401k solutions tailored to the needs of small businesses.
SurePayroll's survey results contradict the findings of a small business survey conducted by research firm TowerGroup in 2002. At that time, the firm estimated that the emergence of online 401k plans would increase the amount of small business owners who offer 401k plans to 65% by 2005. According to SurePayroll's survey results, though, the number has not increased as expected.
"The amount of small business owners who offer 401k benefits to their employees has not reached the level predicted five years ago, and a major reason why could be because most are not aware of the newer online 401k plans they can afford," said SurePayroll President Michael Alter.
Small Business Owners Fear High Costs
Many small business owners surveyed cited fear of not being able to afford offering 401k benefits as a major concern keeping them from implementing a plan.
"We have explored upgrading our plan to a 401k, but it seems like the companies who want to administer them are looking for fat cats that have a lot of income to sock away. We are a younger company and we need to help our employees get started without excessive administration costs," responded one small business owner.
Traditionally, 401k benefits have been associated with large companies that have the means to offer more extensive plans, but recently developed services, such as online 401k plans, have become an affordable option for small businesses.
Are small business 401k fears unfounded?
While many small business owners believe 401k plans are too expensive to offer, a 2006 survey conducted by research firm Harris Interactive suggests their fears could be based on preconceived notions of 401k instead of concrete evidence.
According to the survey, while most respondents felt 401k was too costly to offer, 63% admitted they had no factual knowledge of how much a 401k plan would cost to administer.
In addition to fear of high costs, 23% of SurePayroll's survey respondents noted employee apathy and lack of demand as a reason for not offering a 401k plan. The responses suggest most small business owners feel that even if they offered a 401k plan, employees would not be interested.
However, many survey respondents indicated their business has noticeably improved since offering a 401k plan to their employees. 52% of respondents who already offer 401k reported that doing so has had a noticeably positive impact on their business. 29% said they have been able to attract and retain employees by offering 401k benefits.
"Most employees don't feel it is their place to ask for retirement plans from their employers, and employers shouldn't mistake silence for indifference," Alter noted. "Retirement plans benefit employees, and can ultimately benefit a business by retaining and attracting superior talent."
Additional Insight
Surveyed business owners offered additional tips and comments to fellow entrepreneurs regarding 401k plans for small businesses. Advice offered by business owners included the following:
- "I think the owner should always offer to at least apply 2% to a 401k type program to all employees. It helps to educate all employees on savings, as they can see what 2% can do, and then they are more inclined to invest themselves. I believe this helps employees to feel that the employer is on their side, even if he can not offer them a pension plan."
- "A small employer should plan for retirement because no one else is going to plan it for you. Also, you should reward employees along the way by including them in a retirement plan. Remember, they contribute towards your success and how much you can invest in your retirement."
About SurePayroll
SurePayroll is America's largest full-service online payroll provider. In addition to its payroll and ClickFREE™ tax file and pay service -- which allows a user to complete the entire payroll process in minutes -- SurePayroll provides HR and compliance resources, workers' compensation products and 401k retirement solutions designed specifically for small businesses. For more information, visit www.surepayroll.com.
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