‘Positive’ Thinking: Why Small Businesses That Offer a 401(k) Do So

Last week we explored the reasons why small businesses DON’T offer a retirement plan to their workers. But there are quite different—and positive—reasons for choosing to do so.

The obstacles that keep most small businesses from offering a retirement plan to their workers are an assortment of factors, real and (somewhat) imagined. There ARE remedies for those concerns,[i] but mediation of those concerns doesn’t seem to be a factor in the motivations of small businesses that DO choose to offer a plan.

Reasons ‘Able’

According to that recent survey by the Employee Benefit Research Institute (EBRI) and Greenwald Research, when the small business owners who offer retirement plans were asked the reasons that they do so, factors associated with attracting and retaining workers were the most prominent. Indeed, the vast majority—more than 9 in 10 of the small business owners[ii]—said that a reason they offer a plan is the positive effect on employee attitude and performance. 

According to the report, 90% said that a competitive advantage for the business in employee recruitment and retention is a reason for offering a plan. In fact, nearly a third (30%) said the positive effect of offering a plan is the MOST important reason, though nearly as many (25%) cited the competitive advantage as the most important reason.

Tax ‘Tacts’

Not that tax benefits and preferences weren’t factors; roughly two-thirds of the small business owners said that tax advantages for key executives and allowing the owner to save for retirement on a tax-deferred basis were (also) reasons for offering a plan, though only about 5% of the small business owners cited each of these as the most important reason.

The bottom line is there are any number of good, positive reasons—benefits for workers and business owners alike—for offering, and participating in, a workplace retirement plan. Unfortunately, there are also any number of reasons to put off doing so—not enough time, worries about the expense, confusion about the options, inertia, and that all-too-human inclination to put off big decisions for another day.

Then again, aren’t those the same reasons often put forth to justify not saving for retirement?

- Nevin E. Adams, JD

See also: 5 Reasons Why Your Small Business Should Offer a Retirement Plan | National Association of Plan Advisors (napa-net.org)


[i] Notably the tax credits included in SECURE 2.0.

[ii] While those small business owners seem committed to the offering, the survey DID find some points of confusion with regard to the obligations associated with that undertaking. Turns out the one statement the survey asked about plan design requirements that was not true had the highest percentage of business owners agreeing with it; two-thirds (63%) of these owners thought that employer contributions were always automatically vested (in fairness, those who didn’t offer a plan were even more mistaken—and that WAS cited as a reason for not offering a plan).


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