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American small businesses have a big problem.
While publicly traded companies dominate the headlines, most American companies are small and privately held. However, access to retirement savings has not kept pace: Nearly two-thirds of employees at companies with fewer than 50 workers lack access to a retirement plan, according to research from Georgetown University. And we don’t need to tell you how nervous Americans are about retirement; Imagine the “This is fine” meme of a cartoon dog sitting at a table in a burning room surrounded by flames.
Many small businesses assume that offering a retirement plan is too expensive or time-consuming. The accountants, lawyers and financial advisors who work at those companies sometimes share that perception. But those concerns may be overblown, according to a Boston College survey. “Providers of professional services to small employers are trusted partners in key business decisions,” the researchers said in the survey. “Improved awareness and framework changes, as well as more involved guidance, can significantly influence whether a small business offers a retirement plan.”
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Run for cover
There are affordable options even for businesses operating on slim margins. Boston College researchers noted that 401(k) plans cost employers less than $2,000 annually for a five-person business and less than $3,000 for a business with 25 employees. The survey also found:
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Advisors who actively help clients establish retirement plans and frame them as recruiting and retention tools are much more likely to work with companies that ultimately adopt plans.
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Discussions about pooled employer plans, multiemployer plans, and different types of 401(k)s were also linked to higher adoption rates, while an emphasis on simplified employee pension IRAs was correlated with lower coverage.
Everything in one place. Some companies are trying to close the gap by bringing retirement plans directly to the software platforms that small businesses already use. Fintech Vestwell and Intuit announced this week a plan to incorporate retirement savings plans into QuickBooks, which millions of small and medium-sized businesses rely on for payroll, finance and employee management.
“It’s not that small business owners don’t want to help their employees save for retirement,” Vestwell founder Aaron Schumm told Advisor Upside. “It’s been really complicated and burdensome. If nothing changes, we’ll be looking at a generation that simply can’t afford to retire.”
This post first appeared on Retirement Upside. To receive useful information for financial advisors who guide clients through the strategies, products and policy changes that shape retirement outcomes, subscribe to our free Retirement Upside newsletter.