SurePayroll Insights Survey: Economic Fears Limit Opportunities for Small Business Employees to Save for Retirement

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Survey estimates that 39 million Americans who work for small businesses do not have access to a company-sponsored 401(k) plan.

At SurePayroll, a small business owner can offer a 401(k) plan for as little as $85 a month and a one-time start-up fee. Online administration makes the program simple to manage.

According to a recent survey of small business owners conducted by SurePayroll, encouraging employees to save for retirement is not a priority for small businesses.

SurePayroll's study reveals that only one-third of small businesses currently offer 401(k) plans to their employees. Moreover, 45% of small business owners do not offer any type of retirement savings plan.

Given that small businesses employ an estimated 59 million members of the U.S. workforce, SurePayroll's analysis concludes that approximately 39 million small business employees do not have access to a 401(k) savings plan and that over 26 million small business employees do not have access to any form of company-sponsored retirement savings plan.

SurePayroll President Michael Alter says that it is urgent that business owners lead retirement savings efforts now.

"What will happen when 39 million people try to retire without an income?" says Alter. "Saving for retirement is no longer an option -- it's crucial for the stability of our future economy. Additionally, 401(k)s can provide a sense of encouragement to employees in this tough time. Besides that, businesses need it as part of their basic benefits package to compete for talent."

Why Small Businesses Fail to Offer 401(k)s

According to SurePayroll, there are six main factors working against small business 401(k) savings programs:

(1)    Small Businesses Are Struggling -- According to SurePayroll's research, the main reason small businesses are not offering employees a 401(k) program is the economy. 48% of small business owners surveyed indicated that the current state of the economy has had a negative impact on their ability to offer 401(k) benefits.

(2)    Perception of High Expense -- While more affordable plans have hit the market in recent years, the perception still remains that 401(k) administration is cost-prohibitive for small businesses. Of those who do not currently offer employees a 401(k) plan, four out of 10 small business owners attribute it to the perceived cost of starting and administering the program.

(3)    Fewer Options for Small Business Owners -- Historically, large companies have had many retirement plans from which to choose. However, vendors offering small business retirement plans tend to offer more limited plans, contributing to the perception that small business plans are generally meant for larger companies.

(4)    Salaries are Down -- According to the SurePayroll Small Business Scorecard for July 2008, employee salaries are down 0.3% this month. With rising costs for items like gas and groceries, coupled with lower salaries, employees are struggling to save -- even if their companies offer a savings plan. Some small businesses shy away from providing a 401(k) simply because there is no employee interest.

(5)     Lack of Knowledge Regarding 401(k) Plans -- The survey indicates that 66% of respondents felt that offering 401(k) benefits would not attract or retain new employees.

(6)    Low Returns on Invested Funds -- Low stock market returns are apparently discouraging some business owners from initiating employee retirement savings programs. 7% of respondents indicated that 401(k) plans are not attractive because they are currently not yielding worthwhile returns.

Recommendations to Improve Retirement Savings

Steve Kania heads SurePayroll's small business retirement group and explains that most reasons given for not offering a 401(k) plan are misconceptions that prevent business owners from making a decision that will impact their business.

"There are new, affordable options for small business owners who want to offer retirement plans," says Kania. "At SurePayroll, a small business owner can offer a 401(k) plan for as little as $85 a month and a one-time start-up fee. Online administration makes the program simple to manage."

He offers these three tips to small business owners:

  •     Even when profits are down, you should offer a retirement plan to employees. The burden of contribution matching may be scaring some business owners, but you don't have to match employee contributions. In a down economy, simply enable employee saving without employer matching. The costs are minimal. The benefits, on the other hand, are big. Encouraging employee financial wellness is a proven way to improve employee retention. The last thing you want to do in a challenging economy is lose your best employees. So start with a non-matching program. You can consider adding matching contributions when your company's profitability rebounds.
  •     Shop around for the best plan. The 401(k) market has changed considerably in recent years. There are many new providers when it comes to 401(k) plans. Your insurance agent, financial advisor, health insurance firm and payroll provider are four sources you should speak with before establishing a 401(k) program.
  •     Encourage employees to buy low and sell high, not vice versa. Many companies are not encouraging employee savings because current equity and debt returns are low. That's a mistake. When the market is low, that is precisely the time when your employees should be saving, as there is a good chance of future appreciation. Moreover, with a 401(k), employees will be investing with every paycheck and this limits their downside risk through an investment technique called dollar-cost averaging.

About SurePayroll:

Voted Editor's Choice for best payroll service by PC Magazine, a Top 100 Product by Accounting Today and finalist in the Best Customer Care and Best Product categories of the 2008 American Business Awards, SurePayroll is America's largest full-service online payroll service and honoree of the of the Inc. 500 Fastest Growing Businesses award two years in a row.

SurePayroll is passionate about small businesses and their payroll. The company is dedicated to providing an extremely friendly and simple payroll experience - at a price small business owners can afford.

In addition to its payroll and ClickFREETM tax file and pay service - which allows a user to complete the entire payroll process in minutes - SurePayroll offers a suite of online services designed specifically for small business, including HR and compliance resources, 401(k) retirement solutions, health insurance and workers' compensation products.
SurePayroll also offers a private-label and co-branded payroll service to accountants and banking partners to offer payroll processing to their small business clients.

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Frank Krolicki
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