Retirement’s Impact on Small Businesses

Common Misconceptions: How Retirement Plans Can Make a Big Impact on Small Businesses

Retirement plans are an essential business strategy for attracting talent, controlling costs, and securing employees’ financial future.

Many Americans who save for retirement do so through an employer-sponsored 401(k). But nearly half the U.S. workforce (47.3%) may be missing out on an important tool for securing their financial futures. Today, 60 million Americans work for small to mid-sized businesses (SMBs)1 – which are 11x less likely to offer a 401(k) than larger corporations2.

For many small and mid-sized businesses, offering retirement benefits may seem daunting, especially in early years of business growth. But, with a solid retirement plan in place, business owners can help their employees build financial security. What’s more, it can also provide a way for business owners to save for their own retirement while enjoying the tax benefits these plans afford.

Let’s look at some common misconceptions that might be keeping you from making a more economically strategic decision.

1. 401(k) Plans Require A Ton of Time

When you run a small business, you wear many hats. The last thing you may want to do is add yet another responsibility, especially one with significant, and seemingly complicated, rules and regulations. The good news is that you don’t have to manage an employee retirement plan by yourself.

While you can’t outsource the process in its entirety, there are a variety of ways in which your provider can help streamline and simplify the setup and administration process, starting with your plan design. Consider a provider that:

  • Helps you design the right plan for your workforce, industry, and business size
  • Integrates with payroll providers to help you manage employee contributions
  • Supports you with required compliance testing and IRS paperwork
  • Helps you educate, engage and support employees
  • Offers reporting to help you assess and stimulate plan utilization.

If investment risk is a top concern, many providers offer investment selection and monitoring services that can help lower your liability and workload. This can help alleviate the responsibility of investment performance, as well as provide peace of mind that your employees – and you – have access to the appropriate investments to reach their retirement goals.

2. It's Expensive

A 401(k) plan may be more affordable than you think. 401(k) fees have been simplified and plan management expenses may be deducted as business expenses, reflective in your taxes. It’s also important to note that plan expenses can be shared between an employer and plan participants. As a plan sponsor, expect to pay a setup fee and annual administration fees. And, for your employees, participant costs can be kept under 1% to keep employee impacts low. Knowing the average management fees (typically 0.5 - 1%) can help you avoid excessively high annual fees or hidden costs for optional services.

It’s important to talk with providers about what type of fees the funds in their portfolio charge. While you may want to keep the fees as low as possible, this might impact the quality of service. Be sure to ask what services are included in their base fee, which services are extra, and if there are any additional fees that come up on an annual basis. It’s well worth paying a little extra for quality employee support and investment expertise. 

3. I’ll Have to Match Employee Contributions

Many small business owners cite worries over affording a match as the reason they don’t offer a 401(k). While matching is not a 401(k) requirement, it can provide business benefits that outweigh the costs. In a competitive talent market, your 401(k) can be a differentiator that helps you attract and retain high-quality employees, reducing talent acquisition and turnover costs long term. 88% of job seekers say a 401(k) is a “must-have” when evaluating a job offer4 and 78% of employees are more likely to stay with an employer because of their benefits.5

Talk to your provider about options for a profit-sharing plan that rewards employees with a share of annual business profits based on its quarterly or annual earnings. Plans like this can improve engagement and draw a direct connection from an employee’s contributions to the overall success of the business. Or, design a matching program that vests over time, giving your workforce an incentive to stay and reducing your turnover costs.

In short, don’t let the match question stop you from getting started with offering an employee retirement plan. You may be able to add one later. And when you do, you can deduct matches as business expenses.

4. Employees Won’t Participate (And Then I’ve Wasted Money)

Some small business owners worry that employees won’t participate in a retirement plan. But, the data tells a different story — 401(k) participation is popular. Today, more than 72% of employees who have access are utilizing their retirement plans.6  During times of uncertainty or market volatility, retirement plans are particularly important as they help employees continue to build financial security for the future.

Most retirement providers offer communication and education programs that are critical in driving employee participation. Additionally, automatic enrollment can help you achieve participation rates exceeding 90%, as compared with participation rates of 50% for plans where workers must opt in.7 Ask your provider about automatic enrollment where employees opt out rather than opting in.

The Positives Deliver Ongoing Value

Retirement plans may feel daunting, but you’re not in this alone. With the right plan and support, offering retirement benefits can give your small business the types of competitive advantages that help build long-term and substantive growth.

  • Attracting top talent: Retirement is the most popular benefit after health insurance.8
  • Employee retention: 78% of employees surveyed are more likely to stay with an employer because of their benefits. 9
  • Talent mobility: Each employee who works past retirement age costs companies an average of $50,000 per year in extra payroll expenses.10
  • Productivity: Employees less distracted about their financial future can better focus on work that drives success for the business. 

For your business and your employees, a retirement plan is an opportunity to start building for the future, today. You should discuss with your legal and tax advisor your options based on your own particular facts and circumstances.

Empower Your Workforce

We’d love to talk. Fill out the form and a team member will reach out shortly.

1 2019 Small Business Profile,
Workplace Retirement Coverage Drops And The System Continues To Fail. Forbes. October 15 2018.
3 Worker Participation in Employer-Sponsored Pensions: Data in Brief. December 1, 2020.,105,376
4 2018 401(k) Participant Survey.
5, August, 2018
6 Building Financial Futures. 4th Quarter 2020.
7 Automatic Enrollment Can Boost Retirement Plan Participation. Pew Charitable Trusts. August 15, 2018.
8 2020 Most Popular Employee Perks and Benefits. Weisberg Cummings. January 26, 2019.
9  Employees are more likely to stay with their employers when offered a group benefit marketplace.
10  401(K) Benefits for Business Owners. Fisher 401k. January 10, 2020.



Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under the Investment Advisers Act of 1940, ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in writing by Morgan Stanley and/or as described at Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.

Morgan Stanley Smith Barney LLC is not implying an affiliation, sponsorship, endorsement with/of the third party or that any monitoring is being done by Morgan Stanley Smith Barney LLC (“Morgan Stanley”) of any information contained within the website. Morgan Stanley is not responsible for the information contained on the third party website or the use of or inability to use such site. Nor do we guarantee their accuracy or completeness.

© 2021 Morgan Stanley Smith Barney LLC. Member SIPC.

CRC#3544255 (05/2021)