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  • Writer's pictureAlexander Beard

Should you provide a 401(k)-plan in your small or medium enterprise?

The 30 million small businsses in the United States constitute nearly two-thirds of all the jobs created within the private sector over recent decades. And according to the Office of United States Trade Representative – “Small and mid-size enterprises “SMEs” that export tend to grow even faster, create more jobs, and pay higher wages than similar businesses that do not.”

This means that SMEs employ approximately 47% of the workforce in America. The pandemic shuttered small businesses temporarily, with many perishing as a result of lockdowns and the inability to pivot a brick-and-mortar business online. The Federal Reserve estimates roughly 200,000 SMEs closed their doors permanently in the last year over and above the 600 000 businesses that close each year. It is heartbreaking that these businesses had to close by no fault of their own, but this figure is far less than initially speculated.

In light of these numbers, it comes as no surprise that a recent survey done by JP Morgan suggested small business owners still have a positive outlook on their businesses’ futures. A whopping 85% are confident that their companies would endure the hardships following the pandemic closures.

With most states almost completely reopened, a new dilemma has surfaced for SMEs. Maintaining and acquiring staff is proving more difficult than before the pandemic. Reasons for this phenomenon vary from work-from-homers not wanting to return to the office permanently or finding alternative employment to city dwellers who downsized by moving to small towns and found the simpler life more tolerable. Whatever the reasons are, small businesses are struggling to fill positions and once again have to adjust to the new employee environment.

Many employers are offering return-to-work bonuses or raises to entice employees, both existing and new. Although this may work in the short term, spiralling costs in supplies and forced labor increases may prove that providing benefits is a better, more affordable lure over time.

In the same survey JP Morgan did during the pandemic with small business owners, they found over 50% of employers offered retirement plan benefits, of which most were 401(k) plans. And more than one-third of business owners not currently offering retirement plans aim to provide such programs within the next 12 months.

Employers realize the benefits to employees and themselves of providing a retirement plan and see it as an attractive incentive to acquire staff. Many employees do not have savings outside of their benefits, making an adequately established 401(k) even more important. Overall, employees feel more secure knowing that they contribute towards their retirement into a company-sponsored plan. Not only can this attract more candidates, but also retain current experienced staff. Staff attrition can cost upward of 20% of the salary for each replacement earning a median salary of $45,000 with an incremental increase of up to 213% for high-level specialized employees. A 401(k) plan could be a strong motivator for an employee to grow in their current company rather than finding employment elsewhere.

Why are so many companies not offering 401(k) plans?

Cost is a factor for many SMEs in providing a retirement plan to their staff. Some may feel their company isn’t big enough to justify such an expense. It’s not to say that they are incorrect about their position, but with costs lowering over the last few years, a 401(k) plan may be more affordable than presumed. It is best to make an informed decision, especially with tax credits and benefits a company could enjoy after establishing a 401(k) plan.

A professional financial adviser can properly benchmark your plan among other service providers while ensuring that it is being administered most efficiently for a reasonable price. Ensure your financial adviser fully and openly discloses all sources of fees received on a direct and/or indirect basis and supplies in writing the frequency of fees and services you would receive. Click here to speak to a professional.

Is it difficult to implement a 401(k) plan in a small business?

Yes and no. Depending on the number of employees you currently have and plan to acquire, the options will differ and can therefore be complicated or straightforward. You may even face some resistance from current employees if they are concerned about how it could impact their wages or taxes. These discussions amplify the importance of engaging an experienced financial adviser. Your financial adviser should have the ability to educate employees on the benefits of the plan and communicate plan details to owners and employees alike, regardless of sophistication level.

A good adviser will demonstrate an unparalleled knowledge of retirement planning, evaluate funds and service providers objectively, and guide you through the entire process. They can create an appropriate investment strategy and assess ongoing fund performance.

Will an adviser keep me updated on any changes?

Yes – this is why choosing the correct financial adviser is critical. An experienced adviser would generally serve as an active contributor to industry development and be abreast of legislative or regulatory changes that may impact your plan.

It is an adviser’s duty to lead you through ERISA’s requirements and provide the necessary education, forms, and checklists to ensure the required skill and care are taken within the company.

SMEs are the backbone of the economy. If the pandemic taught us anything, it’s that small businesses are resilient but need to strengthen their ability to withstand the unforeseen. Now more than ever, it’s imperative for companies to structure their finances properly and build trusting relationships with reliable financial advisers.

At Alexander Beard, we pride ourselves on providing our clients with experience and knowledge within the financial sector. If you are looking for a 401(k) plan for your small business, contact us for a free consult at or complete our contact form here. One of our specialists will be in contact as soon as possible.

Melissa Eugenio

Vice President Operations


Office of United States Trade Representative: Small- and Medium-Sized Enterprises (SMEs)

JP Morgan Asset Management: Three reasons why small businesses are increasingly offering 401(k) plans


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