Is my business too small to offer a 401(k) plan?

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Small business owners and their employees often enjoy perks such as a strong sense of community, afamily-like atmosphere, and the ability to make each employee feel as though their voice is truly heard.

One thing that’s often lacking in small businesses, however, is the availability of employee benefits. And that can be a serious issue. Today’s workforce expects employers to assist them financially in many ways; concerns such as health insurance, student loan repayment, and, yes, retirement, are all at the forefront of the conversation.

Compared to their corporate counterparts, many small businesses are behind when it comes to the benefits that are offered, especially when looking at retirement savings.

Common reasons small businesses don’t offer a 401(k) plan

There are a variety of reasons a small business may not think a 401(k) plan is a viable option for them, but there are three that are the most common:

  • "My company isn’t big enough."
  • "I can’t afford to sponsor a plan. That’s way too expensive."
  • "My employees aren’t interested in a retirement savings plan."

These common retirement myths are often voiced by those who haven’t had the time or motivation to uncover the reality surrounding workplace retirement plans, but we’re here to debunk the rumors and set the record straight.

Three questions small business owners have about offering a 401(k)

  1. Is my small business big enough to offer a 401(k) plan?

    While having a business that is "too small" to offer a retirement plan is one of the top reasons small business owners decide not to offer a 401(k) or other workplace retirement savings option, there’s no validity to the claim. Companies of any size can offer a 401(k) plan; many providers even offer options for owner-only businesses. The next time you start thinking your business doesn’t have enough employees to warrant a retirement plan, remember that one is all it takes. And we think that helping any number of employees save for a more secure future—whether it be one or 100—is worth it.

  2. Is a 401(k) plan is too expensive for my small business?

    Many small business owners worry about the cost of starting and operating a retirement savings plan, which isn’t necessarily an unjustified concern. But the reality is that the employer cost of sponsoring a retirement plan may be lower than that of other benefits that are usually offered to employees, including health insurance and paid leave. Plus, qualified employers may receive a tax credit of up to $5,000 per year for the first three years they offer the plan* just for starting it up.

    "But that just covers the start-up cost, right? What about matching contributions?"

    Employers can decide whether to provide a match based on their chosen plan type and design. Employers that do decide to match employee contributions should remember that qualified employer contributions are tax deductible. For many business owners, offering a 401(k) affords them tax breaks—both professionally and personally.

  3. Are my employees are interested in a 401(k) plan?

    Perhaps the most outlandish of these common myths, uninterested employees aren't nearly as prevalent as small business owners might think. Who doesn’t want to safeguard their financial future or work toward reaching their retirement goals? Offering a retirement plan benefit to employees goes a long way in making them feel valued, and can help attract and retain top talent.


Why offer a small business 401(k) plan

Regardless of size, companies that offer some type of employer-sponsored retirement savings plan all cite similar reasons for doing so:

Retain existing employees


Retain existing employees

Help employees save and prepare for their retirement


Help employees save and prepare for their retirement

Offer a competitive employee benefits package


Offer a competitive employee benefits package

Increase employee job satisfaction


Increase employee job satisfaction

Updated statistics from 22nd Annual Retirement Study, Transamerica, August 2022. 


Why else might it make sense to sponsor a retirement package? There are plenty of reasons.

Attract top talent

As we mentioned earlier, it’s apparent that prospective employees see retirement plans as high-value benefits and they expect to be offered one. If the option isn’t on the table, they’ll likely keep their job searching moving in favor of a company that does offer the benefit.

Business owners need retirement savings too

Don’t forget that as a small business owner, you also need to grow some sort of nest egg to live a financially secure life in retirement. Assets in 401(k) plans and similar accounts can grow tax-free, and reality is, we’re more likely to save for retirement when we have access to an employer-sponsored retirement savings plan—regardless of company size or job title.

May actually be required in your state

Many states have already introduced laws that provide state-run retirement savings initiatives, which means you may be required by law to provide some sort of retirement savings program to employees. Specific regulations vary from state-to-state, so it’s a good idea to take a look at current legislation regarding your state’s mandated retirement program.

The benefits of sponsoring a 401(k) or similar retirement plan as a small business owner are numerous—that much is clear. And just think about how good you’ll feel knowing you are making a lasting impact on the financial future and overall retirement readiness of your employees. To learn more about the benefits of offering a retirement plan for your small business, contact our team today: 833-893-3233, option 1.



* Requirements for this credit include:
Has less than 100 employees
At least one non-highly compensated employee must be participating
-Employer must not have sponsored a qualified plan in the last three years

Ascensus recommends consulting with your accountant to discuss eligible tax credits available to your business. Credits outlined notapplicable to Solo(k) plans.