Small Businesses Go Big on Retirement Benefits
As ACA makes healthcare benefits less relevant, retirement plans take the lead.
If you work for a small business in the U.S. then your retirement outlook may get a little brighter over the next two years. That’s according to the Small Business Owner Study commissioned by Nationwide. As the study reveals, 63 percent of small business owners (SBOs) believe it’s important for them to offer retirement benefits in order to stay competitive in the job market.
That’s great news considering that 84 percent of SBOs believe American workers are facing a retirement crisis – one that may, in part, be due to low number of small businesses that are currently able to offer retirement benefits, including 401(k) plans. Small businesses make up 99.7 percent of all business in the U.S. and they employ half of private sector workers. At present only a third (34 percent) of those small businesses offer these kinds of benefits to their employees.
The good news is that most have plans to get retirement plans on their benefits list so they can attract the best employees. One in three businesses that doesn’t currently offer a retirement package to their employees plans to do so without the next two years. And if you happen to work for a small business that already has retirement benefits, the news may still be good for you, too. Two thirds of those who offer 401(k) plans already are committed to increasing their contributions to stay competitive.
This push towards retirement benefits is at least in some part due to the Affordable Care Act. The ACA makes it easier for people to get health insurance coverage, and it’s also reducing the cost of health coverage to SBOs. As a result they have to offer other benefits in order to attract and retain the best employees. They also have more money available to add or improve retirement benefits since they’re paying less for employees’ health coverage due to the ACA.
“Seeing small business focus on retirement benefits in order to stay competitive is great news because it means more Americans will have access to one of the best retirement savings tools you can have – a 401(k) plan,” says Gary Herman, President of Consolidated Credit. “Job seekers should consider retirement options almost as critical as salary when considering a new opportunity.”
More match, more money for retirement
The reason 401(k) plans are such a useful tool for retirement savings comes from match contributions that many employers offer. Essentially, a business with a 401(k) match contribution plan is offering cash incentives to its employees to encourage them to save. For every dollar you contribute to a 401(k) the company contributes up to 50 cents. They do this for every dollar you contribute up to a certain percentage of your salary – in most cases, about 4 to 6 percent.
- So let’s say you make $30,000 annually.
- Your company offers a 401(k) of 50 cents for every dollar up to 6% of your salary
- That means you should be making contributions that total $1,800 each year.
- If you do, then each year your employer will contribute an additional $900 to your retirement plan, too.
- So your total yearly contributions are $2,700 per year.
No other retirement option has an incentive like that. This makes a 401(k) the best option, even over IRA and Roth IRA accounts. It’s basically free money for your golden years that you leave on the table if you don’t take advantage of your employer’s 401(k) plan correctly.
“You can only put off retirement for so long,” Herman explains, “Even retirees who wanted to work longer have reported that they were forced to leave the workforce either because of health restrictions or not being able to get hired. So you can’t just assume you’ll be able to work through your golden years. Instead, it’s essential to find ways to start saving now. Getting a job with a 401(k) plan is often your best bet.”
For more information about your retirement, visit Consolidated Credit’s Debt-Free Retirement Guide. We also have an Employment Guide that can help you develop a job transition plan if you need to find a new opportunity with a better range of benefits.