Small Business Retirement Plans: 5 Reasons To Offer Them To Workers

Many small business owners look at their employees as family members, but are not in a position to offer benefits that larger organizations can provide. However, giving workers a retirement saving program may be easier than many business owners realize and research shows that making it automated can increase employees’ likelihood of putting money away. Here are five reasons why employers should reconsider creating retirement plans.

1. Retirement Plans Costs Less Than You May Think: The Center for Retirement Research at Boston College is one of the country’s leading sources of information on all major aspects of retirement income. Its 2023 Small Business Retirement Survey included 703 firms with 100 or fewer employees and found that most cited costs and administrative burden/compliance as barriers. More than half believe providing a retirement plan would cost more than $10,000 per year and nearly 30% think it would cost more than $20,000 per year. However, the Center then conducted a basic Google search and found several 401(k) options where annual employer costs would only be about $2,500 for a firm with 10 employees and $5,000 for a firm with 50 employees.

2. There are Tax Credits for Starting Retirement Programs: The survey also found that the vast majority of firms with fewer than 50 workers are not aware that they can claim a federal tax credit of up to $5,000 for three years to help offset the costs of starting a plan. Knowing this may actually change their mind since 78% of employers say that this type of credit would make offering a plan more appealing.

3. Managing Retirement Programs Takes Minimal Time: In addition, 73% of the firms surveyed think it would take several days a month to administer a retirement plan. In reality, after the initial set-up of filling out paperwork, operating a retirement plan should only take a few hours a year for a small business owner to manage.

4. States are Facilitating Free Retirement Programs: If you run a business in California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Maine, Maryland, Minnesota, Nevada, New Jersey, New York, Oregon, Rhode Island, Virginia, Vermont, or Washington, you are in a state that is offering or will offer an retirement plan to small businesses and their employees. These state-facilitated retirement programs create an individual retirement account (IRA) that is managed by the state. Workers are automatically enrolled to start through payroll deduction but may opt out or change their contributions at any time.

5. Offering Retirement Programs Improves Retention: Let’s face it. Benefits matter. If an employer is able to offer a retirement plan to employees, that will play a factor in that worker’s decisions to stay or leave. A study on Gusto’s platform found that workers are on average 40% less likely to leave in the first year when they are offered retirement benefits and this jumps as high as 54% for some jobs.

In his 2024 letter to investors, BlackRock CEO Larry Fink wrote: “Today in America, the retirement message that the government and companies tell their workers is effectively: “You’re on your own.” And before my generation fully disappears from positions of corporate and political leadership, we have an obligation to change that.” If you are a small business owner and want to create a retirement plan for your employees, these are some good reasons to consider being part of that change.