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Could 401(k)s Become More Accessible for Small Businesses?

Americans may not be saving enough for retirement. Can small-business owners help? A new proposal may help make it easier for you to offer 401(k) plans to employees.
February 04, 2016

Americans, quite simply, may not be financially prepared for retirement. One reason could be the lack of 401(k)s, or employer-sponsored retirement savings plans, offered by small-business owners. Only 14 percent of small-business owners with 100 employees or less offer 401(k)s, according to the most recent statistics available from the Government Accountability Office. (It's just 5 percent for those business owners with less than four employees.) And since small-businesses make up the vast majority of employers in America, that can add up to a paltry retirement savings.

President Obama recently announced a proposal to address this issue for the 2017 budget. The proposal would make it easier for small-business owners to pool their 401(k) plans together, so owners can offer the plans at a lower cost.

Currently, pooling can only occur among similar companies—for example, auto dealers with other auto dealers, Labor Secretary Tom Perez claimed on a call about the proposal. By removing this restriction, White House officials suggest it will reduce the costs and burdens associated with offering a 401(k).

"Setting up, operating and monitoring the day to day activities of a 401(k) is an expensive proposition, and many small-business owners simply don't have the capital," says Laura MacLeod, creator of From The Inside Out Project. "Banding together cuts the costs. Companies will be able to share resources, employees, research information and other tools. This allows small-business owners to possibly afford the 401(k). In addition, it gives small-business owners a network of new users [who] can assist each other as issues crop up in this new venture."

If small-business owners now start providing 401(k)s, those that don't join in will be less desirable places to work.

And offering a 401(k) can help make business owners competitive in the marketplace. Not only could it help retain current employees, but the benefit may also be a way to attract job candidates. "If small-business owners now start providing 401(k)s, those that don't join in will be less desirable places to work," MacLeod says. "If the trend catches on, any business not providing 401(k)s may be left in the dust—[the] best candidates may not even consider applying to work there."

While the 2017 budget won't be released until February 9, small-business owners may want to consider ways to offer the valuable benefit to their employees. The Department of Labor has tips on what goes into establishing a 401(k) plan for your employees.

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Photo: iStock