Recently we learned that U.S. workers view 401(k) plans as a must-have benefit, and a new report from the Transamerica Center for Retirement Studies (TCRS) suggests that employers also understand the value of this tax-advantaged savings vehicle. Specifically, 75 percent of surveyed employers said that they believe their workers view a 401(k) or similar plan as an important employee benefit, including 44 percent that believe employees view these retirement plans as a “very important” benefit. Sixty-nine percent of employer respondents also said that they believe offering a 401(k) or similar plan is important for attracting and retaining talent. However, even though the value of a 401(k) plan was universally recognized, retirement plan sponsorship rates decreased with company size.
For example, 90 percent of large firms (500+ employees) in the sample offered a 401(k) or similar employee-funded retirement plan but only 60 percent for small companies (5 to 99 employees) did the same. Financial costs and a lack of organizational resources are the main reasons why some smaller firms still do not provide workers with access to a 401(k) plan. This is evidenced by a new LPL Financial study which found that of the surveyed small business owners that do not currently offer workers a 401(k) plan, 39 percent cited “cost” as a major hurdle, and 19 percent blamed “complexity.” Ninety-one percent of respondents, though, said that they would be at least somewhat more likely to begin sponsoring a plan if the cap on the current tax credit for starting a plan were increased to $5,000 (as suggested under several recent bipartisan legislative proposals) and adjusted to cover all initial costs.
Further, 86 percent of the surveyed small employers that do already offer a 401(k) plan said that they would be at least somewhat more likely to incorporate automatic enrollment into their plan design if they were eligible for a $500 credit for doing so (also suggested under recent bipartisan legislative proposals). Another option for small businesses that we have discussed in the past is to take advantage of the efficiencies that are available by joining a multiple employer plan (MEP). Encouragingly, 26 percent of the business owners in the Transamerica survey that expressed doubts about being able to sponsor a 401(k) or similar plan within the next two years said that they would consider joining a multiple employer plan offered by a vendor who handles many of the fiduciary and administrative duties at a reasonable cost.
Sources: Transamerica Center for Retirement Studies, LPL FinancialPost author: Charles Couch