Small Business Owners: Test Your Retirement Plan Knowledge

While worker confidence about having enough money to live comfortably in retirement has been on the rise in recent years, that confidence is based largely on access to and participation in a workplace retirement plan. According to the latest annual Retirement Confidence Survey conducted by the Employee Benefit Research Institute (EBRI), among workers who participate in a retirement plan, the percentage who report being “very confident” in their retirement outlook doubled to 28% in 2015 from 14% in 2013.1

Small Town business

That’s great news, but what about the millions of individuals employed by small businesses that, for whatever reason, don’t offer retirement benefits? Current data indicates that 99% of companies with 500 or more employees offer a retirement plan, while just one company in four with fewer than 50 workers offers a 401(k).2 That sharp divide is likely to leave far too many Americans unprepared financially for the future.

Overcoming Resistance

For every good reason that might persuade small business owners to sponsor a 401(k) — e.g., high contribution limits, favorable tax treatment, and other features that benefit workers and owners alike — there appear to be lingering questions and misconceptions holding many owners back.

If you feel “on the fence” about establishing a 401(k) or similar plan for your small business, take this brief “True-False” quiz, then view the answers below. What you learn may just change your mind.

1.     You are legally required to match employee contributions to a 401(k) plan. ____True____False
2.     Employers with fewer than 100 employees can set up a special type of retirement plan that has significantly less administrative burden than 401(k) plans designed for large employers. ____True____False
3.     Owners can share plan administrative costs with employees. ____True____False
4.     In a 401(k) plan an employee is always immediately vested in any contributions made by the employer to his or her account. ____True____False
5.     In some profit-sharing plans, employers are not required to make a contribution each year. ____True____False
6.     Once you set up a plan you can never terminate it. ____True____False

How Well Did You Do?

  1. Employers are not required to contribute any money to an employee’s 401(k) account. It is completely up to you and can be determined when you set up the plan.
  2. Savings Incentive Match Plan for Employees (SIMPLE) plans were created by the federal government specifically to reduce plan creation and administration burdens for small businesses. SIMPLE plans don’t have the annual tax reporting requirements or the rules and nondiscrimination requirements typically associated with 401(k)s.
  1. True. You decide whether to share plan expenses with employees. That said, there are low-cost providers available that strive to keep administrative costs to a minimum. For example, a business with ten employees could establish a plan that charges $80 to $100 a month in administrative fees and also keeps investment fees (including recordkeeping, fund expense ratios, asset management, etc.) at or below 1%.2
  1. Typically, plan sponsors have the discretion to vest participants in company contributions using their own vesting schedule.
  2. Plan sponsors can suspend contributions to profit-sharing plans during periods when there are no profits.
  3. Although the IRS requires certain steps be taken before a plan can be officially terminated generally employers can do so at their discretion.

To learn more about establishing a 401(k) or other type of retirement plan for your business contact your financial/benefits advisor or financial institution.


1Employee Benefit Research Institute, 2015 Retirement Confidence Survey, April 2015.

2Forbes, “Three Myths Keeping Small Businesses From Starting a 401(k),” September 25, 2013.
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