Retirement Plans: Help for Small Firms

On tap: Assistance and guidance for small businesses looking to help bolster employees’ nest eggs.

Small business owners opting to offer retirement plans to their employees need not go it alone: There’s a lot of help available.

Transamerica Retirement Services (opens in new tab), Plan Administrators (opens in new tab), ShareBuilder 401k (opens in new tab) and ePlan Services (opens in new tab) are among companies set up to handle all of the back office administrative chores associated with 401(k) plans for employees of small companies. They handle the paperwork, registration, government filings and other reporting requirements plus make it possible for employees to access and manage their accounts online. The cost to employers can be as little as $1,000 a year.

Mark Gutrich, president of ePlan Services, notes that unlike “traditional providers…built to handle large employers who have multiple work sites and many different levels of employees,” firms such as his focus on small businesses. For example, ePlan Services’ average client employs 20 people.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of Kiplinger’s expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of Kiplinger’s expert advice - straight to your e-mail.

Sign up

Small employers can also look to Uncle Sam for guidance. The U.S. Department of Labor (DOL) provides information to small businesses looking to start an IRA or 401(k) plan for their employees. The DOL -- in a partnership with the Internal Revenue Service -- has also put together a set of automatic enrollment 401(k) plans (opens in new tab) designed specifically for small businesses.

Retirement plans are seen as an important employee retention and recruitment tool by more and more small companies. About 58 million workers nationwide currently don’t have access to a retirement plan through their workplace, and about 40 million of them are employed at small firms. With the average American life span extending almost 15 years past retirement, saving for life after work is increasingly more important to most workers.

Eighty-five percent of small business owners cite retirement plans as the second most important benefit they can offer, after health insurance, and 75% of owners agree that offering a retirement plan is key to attracting and retaining high quality employees, according to the SunTrust Small Business Owners 401(k) Survey.

Meanwhile, on Capitol Hill, Sen. Jeff Bingaman (D-NM) has introduced legislation that proposes to require any small business with more than 10 employees to offer an employer based retirement savings plan. Contributions wouldn’t be mandatory, and employees would be able to opt out if they wanted to. The bill seeks to phase in the requirements over four years, based on the number of employees at the company. But with Congress’ plate full ahead of midterm elections in November, Bingaman’s bill is unlikely to pass this year.

Small businesses have typically shied away from offering retirement options for a few reasons, including the potential liabilities and the cost of setting up and running a plan. But the Pension Protection Act of 2006 now limits the liabilities that fall on the shoulders of the employer. Moreover, the recent economic downturn is changing the way many small business owners view their own retirement savings strategy. Before the recession, almost a third of them banked on getting sufficient retirement income simply from selling their business. Now, many small business owners realize that creating a viable savings plan that they, too, can use is a smart business decision.

Neema P. Roshania
Researcher-Reporter, The Kiplinger Letters