Myths & Facts about 401(k) Plans for Small Business


401(k) For Small Businesses
Contributed By: The Tandem Family of Companies

Business owners recognize the importance of offering a 401(k) plan to attract and retain good employees. In a national survey conducted by Spark 401k, 94% of small business owners agreed that offering a 401(k) plan drove recruitment and retention. However, the U.S. Government Accountability Office reports only 10% of businesses with 10-100 employees offer them.

Plus, 47% of small business owners are saving less than 10% of their income for retirement — 25% of those are saving nothing at all! In addition to attracting and retaining quality employees and taking advantage of the tax benefits, you can reap the benefits in your personal retirement planning.

Let’s dispel some of the common myths that may have you reconsidering this game-changing benefit.

Myth #1: I do not have enough employees to host a 401(k) plan.

Spark 401k’s study also revealed that 59% of small business owners that do not currently provide a 401(k) plan believe they are too small to do so. This is false! Thanks to the Economic Growth and Tax Relief Reconciliation Act of 2001, businesses of any size have options. Self-employed entrepreneurs even have solo plans available to them.

Myth #2: I cannot afford to match my employees’ contributions so I should not host a plan.

Just because you offer a retirement savings plan does not mean that you have to provide a match. According to the Society for Human Resource Management, approximately 42% of companies do match, and the most common match today is anywhere from 50-100% on the first 6% of employee deferrals. Regardless of the current trends, you are entitled to match based on your company’s budget. This includes opting not to match at all.

Before striking the notion of matching at all, you should educate yourself on the financial benefits. There are tax deduction benefits that should be discussed with your 401(k) administrator or your accountant.

Myth #3: Administration costs are too high.

It is true that 401(k) plans have fees associated with administering them. However, there are several ways these charges can be absorbed. Some employers opt to pay for all of the costs. Others chose to disburse them out of the plan assets (essentially divvying up the charge to participating employees). There is also an option to share these costs between employer and participating employees.

Danielle Ozer ( is the Executive Vice President of Brokerage Services at the Tandem Family of Companies. The Tandem Family of Companies consists of Tandem HR (HR outsourcing solutions), Benefits Solutions Group (benefits brokerage), Workplace Solutions (Employee Assistance Program) and Alliance Workplace Solutions (voluntary benefits). TFC has been providing custom HR solutions to businesses of all sizes since 1998.