Woman Small Business Owner

Should my small business offer a 401(k) plan?

Small businesses like yours are the backbone of the American economy. According to 2020 U.S. Census Bureau data, employers with less than 50 employees made up 94% of all business and employed 39% of all workers[1].

Despite employing a large minority of U.S. workers, small businesses often lag behind larger employers when it comes to employee benefits. The 401(k) plan is no exception to this benefit lag. According to one recent survey, only 26% of small businesses offer a 401(k) plan to their employees[2].

Common reasons small business owners don’t offer a 401(k) include:

    1. They think their company is too small.
    2. They think a 401(k) plan is too expensive.
    3. They think they can’t afford to match contributions.
    4. They think employees aren’t interested in a retirement plan.

As a small business owner have any of these thoughts crossed your mind? Guess what? These are misconceptions! You can offer a 401(k) plan and there are some good reasons to consider doing so. Let’s address these misconceptions.


My business is too small for a 401(k)

The great news is that there are retirement plan options for businesses of all sizes, even the self-employed! With the variety of plan design options, it is possible to find a plan that will work for your business.


A 401(k) costs too much to setup and manage

While it’s true that there are costs associated with setting up and running and managing a plan, the costs are more reasonable than you might think. Additionally, eligible small businesses may also be able to claim a tax credit of up to $5,000 for three years for starting a new plan[3]!


My business can’t afford to match employee contributions

First of all, there are plan designs that do not require employer contributions. But even if you do include nonelective contributions or matching contributions, these contributions are tax deductible for the employer[4].


My employees aren’t interested in a 401(k)

It’s simply not true that your employees are interested in saving for retirement. In a recent survey, 89% of employees said a retirement plan was somewhat or very important to them[5]. While it may be true that your employees do not understand the benefits of a retirement plan, you can be sure that they do want to save for retirement. Education can help them learn about and take advantage of their plan. What an opportunity to help your employees with one of their biggest concerns!


In short, these four objections are really misconceptions. There are many advantages for small businesses to offer a 401(k) from tax credits and deductions, to helping employees save for retirement, to better employee recruiting and retention – not to mention allowing the business owner themself to save for their own retirement!

There’s more great news: if you’re a small business owner you don’t need to figure this all out by yourself! We are a 3(38) investment manager helping businesses of all sizes design and offer a 40(1k) they can be proud of. It’s easier than you think. Schedule a call today to start a conversation about your options!


Download this handy comparison chart:

Common Retirement Plans for Small Business Owners

Click here to download


[1] https://data.census.gov/table?q=CBP2020.CB2000CBP

[2] https://www.plansponsor.com/three-four-small-businesses-dont-offer-401k-plan/

[3] https://www.irs.gov/retirement-plans/retirement-plans-startup-costs-tax-credit

[4] https://www.irs.gov/pub/irs-pdf/p560.pdf

[5] https://www.lightpointportfoliosolutions.com/do-you-really-know-what-benefits-your-employees-want/