New Rule Makes Small Business 401(k)s Easier
Many American workers consider the 401(k) a staple of employment. These defined-contribution retirement plans allow workers to grow tax-advantaged money over time to eventually put toward their retirement – and have largely replaced pension and other plans once offered to employees.
They’re common enough. According to a 2018 study by the U.S. Bureau of Labor Statistics, 85% of workers at large businesses (private-sector companies that employ 100 or more workers) were offered a retirement plan at work.
But 38 million private-sector workers can’t even access a workplace retirement savings plan, in large part because of an absence of small business offerings – that same study showed 53% of smaller-company employees (fewer than 100 employees) could access these plans.
A new rule going to effect in September might change that.
Why Are Small Business 401(k)s So Rare?
“Many small businesses would like to offer retirement benefits to their employees, but are discouraged by the cost and complexity of running their own plans,” Acting Secretary of Labor Patrick Pizzella said in a July release.
But there’s a disconnect, too – a 2018 Millennium Trust Small Business Retirement Survey says that while 88% of employees think retirement plans are an important consideration when considering a new role, “only 23 percent of small businesses strongly agree that having a retirement benefit would help them attract and retain talented workers.”
So if you’re a small business owner who has put off the idea of offering a small business retirement plan, now’s the time to think again. There are plenty of options that might be right for your business, and the numbers show that prospective employees would indeed be swayed by that benefit.
And the federal government is about to make it much easier for you to establish retirement plans for your workers.
Association Retirement Plans (ARPs)
A new Department of Labor rule, announced July 29 and going into effect as of Sept. 30, will open up retirement savings options for small and midsize businesses via Association Retirement Plans (ARPs).
Previously, multiple employer plans (MEPs) typically only allowed businesses with particular similarities, such as common membership to a trade group or having the same owner, to join together to offer a retirement savings plan. However, ARPs will now allow businesses “in the same geographic area, such as a common state, city, county, or a metropolitan area (even if it crosses state lines)” to band together to offer up 401(k)s and other defined-contribution retirement plans.
Better yet, even small business owners without employees, such as sole proprietors, can participate in these plans.
These plans can be offered and managed by a “bona fide” group such as your city’s chamber of commerce, or a private employer organization (PEO) – the latter of which already provides things such as human resource functions and access to health care benefits.
“Association Retirement Plans offer valuable retirement security to small businesses’ employees through their retirement years,” Pizzella says. They’ll do so by making it not just easier, but less expensive for smaller companies to enjoy access to retirement plans thanks to economies of scale.
If that sounds like a sweet deal, it is – but is your business ready to implement employee retirement plans? Where do you begin to find an ARP? If you’re already thinking about these and other questions, now’s the time to get in touch with a team that has answers. McManamon & Co. is an accounting and business services firm that offers consulting to small and midsize businesses on a wide variety of issues, including offering retirement plans.
Small business 401(k)s aren’t the easiest benefit to offer, but it can pay off in attracting more skilled employees who can help you reach the next level. Give us a call at440.892.9088 or contact us online to discuss the possibilities.
Tags: McManamon, small business, small business 401k, small business retirement plans | Posted in McManamon & Co., Retirement Planning, small business