Did you know only 57% of employers under 100 employees offered a 401(k) plan as of 2023? For businesses over 100 employees, that number jumps to 86%, and it is 91% for firms over 500 people.
While businesses of all sizes can greatly benefit from offering retirement savings options—including improved employee satisfaction, tax benefits, and stronger recruitment efforts—many small and midsize businesses (SMBs) remain hesitant to adopt them.
It’s not hard to see why. There are legitimate concerns about the costs, compliance requirements, and administrative load associated with these plans. However, with modern solutions now available, these challenges are easier to overcome than you might think.
In this post, we’ll review the common obstacles SMBs face with offering a 401(k) and how to tackle them effectively.
Common 401(k) Plan Challenges
Offering a 401(k) doesn’t need to be a hassle! And offering it to your people demonstrates your support for them and improves retention by helping them plan for their futures.
Let’s look at some of these common 401(k) challenges and explore how you can manage them!
1. Set-Up and Maintenance Can Feel Overwhelming
Many small business owners worry about the logistics of setting up and managing a retirement plan. Tasks like creating policies, administering the plan, and overseeing contributions can seem like a full-time job.
Automation and streamlined technologies have made 401(k) management much simpler. Many providers now offer tools that handle key administrative tasks, allowing business owners to focus on their operations while ensuring the plan runs smoothly.
2. Perceived High Costs
For SMBs, managing expenses is always a priority. Offering a 401(k) plan may feel like one more financial burden. Research shows many business owners still believe setting up a plan costs thousands of dollars—and that’s on top of maintaining it.
The solution? Affordable 401(k) plans designed specifically for SMBs have become widely available. These options deliver quality benefits without the hefty price tags, making it easier than before to balance value with cost-effectiveness.
3. Navigating Compliance Requirements
Complying with federal regulations can seem daunting. Annual compliance testing, new legislation, and error risks—such as late deposits or missed notices—require ongoing attention. Failing to meet these requirements can result in costly penalties.
Partnering with providers specializing in 401(k) plans or professional employer organizations (PEOs) can simplify compliance. They stay on top of federal and state laws, conduct testing, and ensure your business avoids costly mistakes.
4. Concerns About Fiduciary Liability
Being a plan sponsor brings fiduciary responsibilities, which means employers are legally obligated to act in the best interest of their employees. Tasks like monitoring investments, ensuring reasonable fees, and managing contributions are not only time-consuming but also carry liability risk.
Many providers or PEOs can help mitigate fiduciary liability by managing these responsibilities for you. They provide tools and guidance to ensure that your plan meets the highest standards without leaving you at risk.
5. Unique Plan Needs
Every business and workforce is different. SMBs often fear standard plans won’t accommodate their specific needs, such as eligibility timelines, profit-sharing components, or employer-matching strategies.
Customizable 401(k) plans address this concern head-on. Many providers now offer flexible options that allow businesses to tailor their plans to meet the needs of both their employees and their budget.
Your Partner in Simplifying 401(k) Plans
At the heart of these challenges lies an opportunity to do things better. Partnering with a PEO like PRemployer can revolutionize how SMBs manage retirement plans.
Here’s how PEOs take the stress out of providing a 401(k):
- Simplified Administration: PEOs handle plan setup, management, and maintenance, letting you focus on running your business.
- Cost-Effective Solutions: They leverage economies of scale to offer affordable options tailored to businesses of all sizes.
- Compliance Support: Annual testing, regulatory updates, and error prevention are all managed on your behalf.
- Fiduciary Protection: PEOs share fiduciary responsibility, easing your liability and ensuring your plan is properly overseen.
- Customization: Design a plan that fits your company's unique structure, budget, and workforce needs.
By removing the complexities associated with retirement plans, PEOs empower SMBs to offer meaningful benefits to their employees without the usual hassles.
Offering a 401(k) doesn't have to feel like an uphill battle. With modern tools and expert partners like PRemployer, you can deliver a robust, valuable plan that benefits both your employees and your business.
Curious about how your company can start offering an affordable, easy-to-manage 401(k)? Contact us today to learn how we can help you create a retirement plan that’s efficient, impactful, and stress-free!
