The mom and pop shop around the corner may be small, but together with the rest of the small businesses around the country they are a big deal. A small business is defined by the Small Business Administration (SBA) as an independent firm with fewer than 500 employees. Well, there are some 29 million of these small businesses in the U.S., and 20% of those have paid employees.
To put that 29 million figure into perspective, consider that there are only 18,600 “large” businesses, less than 1% of the number of the small guys.
While single owner and family businesses account the majority of small businesses, these smaller firms still manage to account for 48% of private sector employees. That comes to about 57 million workers getting their paychecks from smaller organizations. If that sounds like a lot, it is. Those small business workers account for about 41% of private sector payrolls. (Source: SBA)
Small businesses are job-creating machines
These small businesses are doing big things. The SBA found that small business create two out of every three new jobs in the U.S. Apparently, a lot of those jobs are keeping people busy. The SBA examined all “high patenting firms” (those with 15 or more patents over a four year period). They found that small businesses produced 16 times more patents per employee than larger patenting firms. That may be in part because small businesses account for 43% of high tech employment.
Small businesses are less successful, however, when it comes to offering retirement plans. The Government Accountability Office estimates that only 14% of employers with fewer than 100 workers sponsor a retirement savings vehicle. And very few companies with only a handful of workers provide a way to save for retirement – just 5% of businesses with four or fewer employees. Small businesses with more employees do better. About 31% of companies with 26 to 100 employees provide a vehicle to save for retirement. Large companies are far more likely to offer this benefit. In fact, more than 90% of large employers offer a retirement savings plan.
Why small businesses don’t offer retirement plans
Despite the disparity between small and large businesses, there are good reasons smaller firms are less likely to provide a retirement savings vehicle. Traditional 401(k) plans require a lot of attention. That means money and staff are required to get the plan up and running. And once employees are enrolled, that’s just the beginning. Someone must ensure that the plan remains in compliance by avoiding “top heavy” status, and that IRS filings are completed accurately and on time.
Under traditional old-school 401(k)s, a new hire can mean a time consuming enrollment process for both the employee and the employer. And if the employer is acting as the investment fiduciary, someone has to either select the investment options or be responsible for giving the thumbs up to an advisor’s suggestions.
On top of the administrative hassles, retirement plans have a history of being unaffordable for small business. The big 401(k) players simply couldn’t make enough money from small plans without imposing big fees on those smaller companies.
Fortunately, all that is changing and at ForUsAll we are proud to be among the agents of that change.
A small business friendly 401(k)
With smart technology and a menu of low fee 401(k) investment options, we are helping to make the 401(k) small business friendly. By bringing on the capabilities of a 3(16) fiduciary, ForUsAll can relieve you of the work of and liability for administering your company’s plan. That includes everything from the day-to-day operations of the plan to the completion and signing of the IRS Form 5500 on your behalf.
ForUsAll plans are employee-friendly too, offering the ability to auto-enroll employees into appropriate low-cost target date funds. This attention to employee engagement has resulted in a participation rate above 89%, even higher than that experienced by much larger companies (as published in The 58th annual PSCA survey). And that’s not all: employee education and easy-to-access technology have delivered an average deferral rate of 8%. (More on ForUsAll’s participation and savings rate data here.)
That’s a full percent higher than what was achieved by much larger plans with an average $1.3 billion in assets.
Like America’s small business segment as a whole, we bet your small business is doing great things. You may be surprised to learn how easy and inexpensive it can be to add a 401(k) plan to your list of achievements.