Employers Wary of 401(k) Costs Can Find the Right Retirement Plan

Companies grappling with worker shortages resulting from the pandemic may be able to help resolve this struggle by offering workplace benefits that account for the future, including retirement plans.

“In this market, it’s going to really require thinking directly about what your benefits are, beyond just what’s traditionally served with health care,” explains Jessica Baehr, head of group retirement at Equitable. “This is a way for [plan sponsors] to differentiate in the marketplace, beyond just wages.”

With falling unemployment and increased job growth, 67% of small business owners are currently experiencing a staffing shortage, according to a March 2022 survey from the National Federation of Independent Businesses. Additionally, Lincoln Financial Group’s Small Business Owner Survey shows that 80% of small business owners view employee benefits as a top priority due to the effects of the  pandemic, 93% have reevaluated their strategy and plan to make due to COVID-19 and 28% of owners have bolstered benefits to attract and retain talent. According to the survey, 30% of small businesses are adding life insurance and 27% are adding a retirement matching contribution, financial wellness program and/or retirement account. Other considered additions include accident, critical illness, vision, dental and other insurance benefits.

As labor markets have undergone wrenching shifts stemming from the pandemic, some employers have increased wages, but businesses are also faced with the challenges of rising inflation and supply chain disruptions.

This comes amid workers’ increased focused on securing retirement benefits and financial wellness resources.

“People are struggling with the concern that they’re not going to have the resources they need to live the life they envision for themselves [in retirement],” Baehr says. “This is where being able to not only offer competitive [retirement benefits], but also to come to the table with other ways that small businesses can demonstrate they’re investing in their employees, is a core differentiator to really attract talent.”

Working with a retirement plan adviser, retirement plan consultant or recordkeeper can help the plan sponsor understand what retirement benefit arrangement is best for employees, owners and the company bottom line, she says.

“Working with an adviser can really help them to understand what their options are, and what makes the most sense,” Baehr explains. 

Small businesses often don’t offer retirement benefits because of the cost and the administrative burden, according to Baehr. She advises small businesses to examine all the options available, and says that there are some that can provide the flexibility needed to offer a retirement plan without passing costs on to customers or reducing headcount.

According to the Lincoln survey, 51% of small businesses report weighing the costs and benefits that a plan would provide as a primary consideration, while 28% cite administrative concerns. Baehr notes that administrative costs for retirement plans have decreased thanks to new entrants to the provider market, however. The survey also found that 72% of respondents said that multiple employer plans, including pooled employer plans, are appealing. 

Plan sponsors can shop for many options, including SIMPLE 401(k) plans, simplified employee pension individual retirement accounts and profit-sharing plans, Baehr says. They should start by examining the needs of the company’s employees and the resources that could be brought to bear, which is a challenge for small businesses because many don’t have a dedicated or large in-house HR department, she explains.

With many types of retirement offerings available, there exists a match for almost every plan sponsor’s needs that will satisfy employees’ desire for a plan, according to Baehr.

She also says that profit-sharing arrangements offer greater flexibility and may be preferable for some small businesses, because they are based on company performance.

“An annual profit share gives some flexibility, but it also enables [plan sponsors] to reward employees when things are going well,” Baehr says. “Another opportunity is that you can reduce the cost by offering match that doesn’t vest for a few years out, [which is] another way to not only invest in employees’ long-term financial security, but also create some retention opportunities.”