There are many small business 401k misconceptions which are largely due to small business owners having a lack of time, budget, and information on the subject.
In the past, small businesses have had few retirement plan options such as 401k plans that were built for their needs and those of their employees. The industry has had no problem marginalizing small businesses in favor of large ones with huge plan assets available in their 401k.
The good news is that that is rapidly changing. Still, many small business owners buy into 401k misconceptions.
Let’s put those to rest:
401k plans are time-consuming and designed for big businesses
Unfortunately, many small business owners are under the impression that 401k plans are a one-size-fits-all benefit that can’t be customized to meet their needs without the commitment of significant time and high fees.
There are plans available to small businesses that were designed with their needs and employees in mind. No longer do small businesses have to accept plans that are built for the needs of large corporations with hundreds, if not thousands of people. Nowadays, small business 401k plans exist that are customized for businesses with 50 or fewer employees. There are even 401ks built specifically for sole proprietors, known as a Solo 401k.
As far as the perceived time commitment, those same plans can be up and running in minutes if not a couple of days and require only a half hour each month to maintain.
Employer matching is a must
Even though matching employee contributions is a great way to recruit and retain talent, it’s not a requirement.
If a small business owner doesn’t want to or can’t afford to match, that’s perfectly fine. As an employer, you are already offering a wonderful service to employees by implementing a plan – matching, while there are tax benefits that come along with it, is simply icing on the cake.
For your hard-working employees, at the end of the day, some savings is better than no savings.
401ks are too expensive to implement and maintain
We know the thought of extra administrative fees weighs heavy in the minds of small business owners. Though there is some relief–through a tax credit—up to 50 percent of the cost to set up and administer the plan.
Ultimately, a plan’s cost depends on the bells and whistles that come with it—some basic plans can cost as little as $115 a month – that’s less than what your business likely pays to fill the water cooler!
High fees and poor advice are just part of the deal
Small business owners face many challenges and work way more than the average person to keep their business running efficiently. Why then do some retirement industry companies still expect you to settle for an inferior plan that charges exorbitant amounts and doesn’t offer solid advice on how to invest? Just because you may have fewer employees does not mean your retirement plan should suffer.
When the right plan is selected, small businesses are able to access low cost, effective funds for their 401k plan. No longer will small businesses and their employees settle for poor performing, high-cost funds that just absorb returns.
Likewise, employees should not feel like they’re alone and in the dark when selecting the retirement plan that will hopefully lead to their dreams coming true.
Small business owners shouldn’t be misled and buy into common myths that will discourage them from offering a 401k plan. Giving your employees a way to save for their retirement is a cheap and easy way to attract and retain talent and maintain an edge over the competition. For employees, participation in a 401k plan is a simple, effective way to save for retirement.
Get the Definitive Small Business Guide to 401k