Small businesses struggle to help employees save for retirement

Retirement


By Jessica Hall

Small businesses don’t have the money, time or know-how to provide retirement benefits.

A recent survey found that small business owners don’t offer retirement savings plans to their employees, with two-thirds doing so because of cost, being too busy, or not knowing how to initiate the process. I have answered that I have not.

According to Fidelity Investments’ 2023 Small Business Retirement Index, only a third (34%) of small employers currently offer retirement benefits to their employees.

Nearly half (48%) of companies that do not offer a plan say they believe they cannot afford one. Other small business owners feel too busy running their company to focus on it (22%), and the same number (21%) say they don’t know how to start the retirement offer process. I’m here.

Nearly half of all U.S. employees work for small businesses, according to the Small Business Administration, so this could leave many unprepared for the future, Fidelity said.

Read: Gig workers and self-employed people need this for retirement savings

“Small business owners face a myriad of challenges growing their businesses, from finding new customers to identifying the next funding round,” said Andrew Schreiner, senior vice president of small business retirees at Fidelity. I am facing it,” he said.

“Providing retirement benefits can feel like a potentially expensive and daunting task, but there are many retirement savings solutions available to businesses of all sizes. Besides helping build, retirement benefits can also have a huge impact – they help attract and retain top talent,” Schreiner said.

When asked why small business owners stay up late, 54% of respondents said that inflation is their top concern when it comes to running a business, while 37% worry about employee attractiveness, retention and benefits. I answered yes. In a tight labor market where small business owners are forced to compete with larger competitors for compensation and benefits, it is not surprising that 73% of small business owners believe they cannot compete with larger companies, Fidelity said. Stated.

When it comes to their own retirement, 83% of small business owners know they should be saving more for the future, but 59% aren’t sure how to make the most of their retirement savings. yeah.

Growing Concerns Among Small Business Owners

Those who are self-employed or run micro-businesses (companies with fewer than 10 employees) are most likely to say they cannot afford to provide retirement savings plans to their employees (71%), which is , which explains why 55% of these employees said so. Employers do not currently offer retirement plans, nor do they plan to do so, a Fidelity study found.

Small businesses agree that employees expect them to provide retirement benefits, but the majority (82%) feel they can’t compete with larger companies on benefits, survey finds .

When it comes to saving for their own retirement, 85% of self-employed/small business owners believe they should be saving more for retirement, and 75% are confident they are saving enough. 42% fear they will never retire. . When asked what prevents them from saving more, the most common response was that they earn only enough to cover their expenses (42%).

“Self-employed people carry the full weight of their business’s success on their shoulders,” said Roger Morissette, vice president of small business retirement products at Fidelity. “Naturally, many people feel they don’t have the time or resources to manage their retirement savings plans.”

The new retirement rules, collectively known as SECURE 2.0, came into force at the end of 2022 as a way to improve retirement savings efforts. One of the provisions is an expanded tax credit for companies with less than 50 employees to pay for administrative costs when starting a new plan. This and other measures in SECURE 2.0 could give small businesses a boost.

Read: Small business workers now have better access to retirement security

Options for small businesses

Small business owners interested in starting a retirement savings benefit have several options, Fidelity said.

Self-Employed 401(k): For self-employed or small business owners who have no employees other than their spouses, these accounts are funded through a combination of employee deferrals and employer contributions. Allows individuals to make the most of the amount possible. keep.

SEP IRA: A SEP IRA is also for self-employed or small business owners with several employees and is funded solely through employer contributions.

Simple IRA: A SIMPLE IRA is funded by a combination of employee deferrals and employer contributions, allowing self-employed individuals and small business owners to take advantage of tax deferred benefits for retirement savings. I will help you.

Pooled Employer Plan (PEP): Designed for small businesses, a PEP allows multiple unrelated employers to participate in a single 401(k) plan, providing It reduces many of the obstacles and costs you face.

-Jessica Hall

This content was created by MarketWatch operated by Dow Jones & Company. MarketWatch is published independently of The Dow Jones Newswire and The Wall Street Journal.

 

(Closed) Dow Jones Correspondence

05/13/23 1512ET

Copyright (c) 2023 Dow Jones & Company, Inc.



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