Key Takeaways

• Survey reveals significant lack of awareness among small business owners regarding 401(k) startup tax credit and other incentives for offering retirement plans.
• Tax credits could be a powerful incentive, with a substantial percentage of employers expressing interest in such incentives.
• Addressing misconceptions and leveraging expertise in benefit administration can help dispel barriers and encourage more small businesses to offer retirement plans.

Ensuring retirement security for employees is a crucial aspect of any business’s responsibility. However, for employees working in small businesses, this security often seems elusive due to the lack of access to employment-based retirement plans. The Employee Benefit Research Institute, in collaboration with the Center for Retirement Research at Boston College and Greenwald Research, conducted a survey aimed at understanding the attitudes, concerns, and knowledge of small business owners regarding retirement plans. The findings shed light on significant gaps in awareness, particularly regarding the 401(k) startup tax credit allowed by the SECURE Act and SECURE Act 2.0.

Awareness Gap

The survey revealed a startling disparity in awareness among small business owners regarding the incentives available for initiating retirement plans. While nearly half of the owners offering a retirement plan were aware of state programs mandating automatic enrollment in individual retirement accounts (IRAs), a mere 22 percent of small businesses were cognizant of such initiatives. Even more concerning was the finding that a significant 72 percent of employers were oblivious to the existence of tax credits of up to $5,000 per year designed to offset the costs of establishing a retirement plan.

Incentivizing Participation

Despite the lack of awareness, there’s a clear indication that tax credits could serve as a powerful incentive for small businesses to offer retirement plans. A substantial 78 percent of small employers acknowledged that tax credits would make it more appealing to provide such benefits. This underscores the untapped potential of incentivizing participation through tax relief mechanisms.

Motivations for Offering Retirement Plans

The survey also delved into the motivations behind offering retirement plans. Over 90 percent of participating small business owners highlighted the positive impact on employee morale and performance as a significant reason for offering such plans. Additionally, the competitive edge in employee recruitment and retention was cited by 90 percent of owners. These findings underscore the pivotal role retirement plans play in fostering a positive work environment and attracting top talent.

Overcoming Barriers

While profitability concerns and administrative costs were cited as barriers to offering retirement plans, it’s crucial to note that better profitability could sway many small businesses to reconsider. Moreover, a deeper understanding of the actual costs of plan administration could dispel misconceptions and encourage more businesses to take the plunge. Partnering with organizations experienced in benefit administration, such as NESA, could prove instrumental in bridging this knowledge gap and facilitating increased adoption of retirement plans among small businesses.

Conclusion

The findings of the survey illuminate the critical need to bridge the awareness gap regarding incentives for small businesses to offer retirement plans. The 401(k) startup tax credit, embedded within the SECURE Act and its subsequent iterations, presents a valuable opportunity to incentivize participation and enhance retirement security for employees. By addressing misconceptions, dispelling barriers, and leveraging the expertise of benefit administration organizations, we can pave the way for a future where all employees, regardless of the size of their employer, have access to robust retirement benefits, ensuring a more secure financial future for everyone involved.

More on 401(k) startup tax credit here.