There is a disconnect between small businesses and 401(k) plans. According to a recent study by SurePayroll, more than 70 percent of small firms don’t offer them.
The reason why, according to a MarketWatch story, is multi-faceted: "There are perceptions [the plans] are hard to administer, expensive to start," says Andrew H. McIlhenny, co-founder of Firstrust Financial Resources, a financial advisory firm in Philadelphia. "Additionally, many small companies may not feel they or their employees would see much benefit due to a lack of interest in participating."
Despite the confusion and concern over costs, small business owners should probably take a hard look at starting one. It is worth a serious money crunching analysis. The reasons are two-fold:
Offering a company 401(k) can be a lure to attract and retain workers. With so much uncertainty in the economy, giving employees options with their money can be a huge benefit.
A business owner can participate in the 401(k) and put away up to $18,000 a year and $24,000 for owners 50 years of age and older. That is far more than an IRA allows: $5,500 and $6,500 for older owners.
If your company decides to offer a 401(k), careful study needs to be undertaken to avoid higher fees.
Smaller companies especially are likely to pick a smaller management firm that offers limited customer service options. So the research has to be thorough. The more complicated the plans, the higher the fees tend to be.
Record-keeping expenses generally range from 0.25% to 1% of the plan's money while adding active management fees depending on the funds.
One thing to keep in mind is that index funds tend to have lower fees because they are not actively managed. Most small businesses pass most or all the costs of the 401(k) costs to employees because offering the plans constitute a benefit.
Other companies match part of the employees' contributions. Helping your employees build wealth can be a substantial morale booster. Keeping your workforce happy is an important part of maximizing output and overall productivity. When employees feel like they're working toward something and their company genuinely cares about them, they are likely to put forth more effort.