The majority of small businesses say they want to offer retirement plans to employees. But a new study shows over half of them fail to follow through.
According to research from investment manager Capital Group, many business owners may not be offering retirement plans as a result of confusion about cost and company size requirements. The study showed two-thirds of small businesses without a retirement plan say they are "highly likely" to offer one, but only 49% have made moves to do so.
Overall, only 28% of businesses with fewer than 10 employees offer a retirement plan and only 51% of businesses with 10 to 24 employees, according to the survey.
"Offering a retirement plan to one's employees can be a critical asset for a business owner who wants to retain and attract new talent, but concerns about cost and a lack of sufficient guidance are holding many of them back," Renee Grimm, senior vice president of retirement plans at Capital Group, said in a statement.
Grimm added that the passage of the SECURE 2.0 Act earlier this year makes this a great time for small business owners to set up a retirement plan due to the tax credits offered.
Brian Hartmann, partner at Granite Bridge Wealth Management, part of Advisor Group, says companies of the future will create feedback systems, where employees can openly communicate about what's important to them in their benefit packages with the executives who are responsible for making those decisions.
“That direct ecosystem will change the relationship between employer — who wants to do best by their employees but is not clear on how — and the employees, who want to be provided with the feeling of security and professional support from the employer,” Hartmann said.
Capital Group’s survey of more than 600 small business owners and their employees showed that “perceived expense” is a key friction area for those not offering a plan, with more than a third of small businesses (34%) citing the cost of a plan as their main concern. Furthermore, 94% of small business owners who do not currently offer a plan said they would be likely to open one if the company were to receive startup plan tax incentives or credits, according to the study.
In terms of solutions, Capital Group advises small business owners to “consider the full range of benefits to your business of setting up a retirement plan,” including attracting and retaining talent to stay competitive and potentially saving money through enhanced startup tax credits.
Capital Group also recommends small business owners connect with a financial professional to choose the right plan, and act as soon as possible because “certain retirement plans will require a start date no later than October 1, 2023 to become effective this calendar year.”
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