Cost Concerns, Ignorance Slow Small Plan 401(k) Adoption

More than 13.6 million employees in small, micro-businesses lack an employer-sponsored 401(k) plan today, a Fidelity news release said – a result that may well be the result of reluctance on the part of the owners of those businesses to embrace the concept.

Fidelity claims that the majority of the owners companies with five to 20 employees that currently do not offer a 401(k) plan nonetheless agree that offering a 401(k) plans would allow them to save more for their own retirement (66%) and help their employees save for their retirement (59%).

Additionally, small business owners understand the benefits of a retirement plan offering to their firm: almost half (44%) of small business owners without a 401(k) plan said the ability to offer competitive benefits to attract and retain employees would be a major reason to offer a 401(k) plan. In fact, a separate study conducted this year by Fidelity on small businesses that do provide a workplace plan, found that more than half (59%) cited a 401(k) plan as beneficial in employee recruitment and retention.

Concerns Cited

Why then a reluctance to offer these programs? The newly released study said that nearly half (43%) of small business owners said they perceive cost as a major barrier in offering a 401(k) plan to employees, while concerns about fiduciary responsibilities and perceived complexity of plan administration, were each cited by 26% of survey respondents.

Advisers would seem to be well-positioned to respond to these concerns, and to perhaps overcome this resistance. Consider that almost two-thirds (62%) of the small business owners surveyed by Fidelity are not confident in their overall knowledge of 401(k) plans, and about one out of four (26%) of those surveyed believed there is a lack of 401(k) plans to suit their company’s small size.

Advisers can address the three major concerns cited in the survey by demonstrating that that there are cost-effective 401(k) options, that certain safe harbor design alternatives can mitigate fiduciary concerns and reduce administrative complexity, and that the assistance of a skilled and knowledgeable adviser can also serve to reduce those issues.