Exposed: 5 Myths About The Small Business Retirement Plan Market

Not only are plans becoming less expensive, they also allow the client some important tax advantages. Additionally, the government is doing more to encourage small businesses to offer retirement plans. For example, employers may be entitled to a tax deduction for their contributions to employees’ 401(k) accounts. In addition, a small business client may be able to receive a start-up tax credit for the first three years after beginning a plan.

In a competitive labor market, can small businesses really afford not to have a retirement plan? Access to retirement savings is an important part of hanging on to talented employees. Given that so many small businesses rely on a few, highly-productive employees, finding ways to keep them on board is crucial to a company’s success.

Myth 4: Small business equals limited investment options.

Traditionally, small businesses have not enjoyed the same access to investment options as larger companies. In the old days, those smaller enterprises that could find a 401(k) could usually participate in only a handful of mutual funds offered exclusively by the carrier.

In our case, we do not limit investment options to proprietary mutual funds. Our entire plan design revolves around bringing Fortune 500-style plan benefits to smaller companies.

For example, our 401(k) option gives small businesses access to diverse mutual funds from leading investment management firms with over 40 investment options. In addition, a broad base of mutual fund options is a feature that advisors value. According to one recent survey, financial advisors rated having access to multiple fund families as being the most important platform feature.

Myth 5: All small business plans look the same.

There is huge demand for retirement plans among a diverse group of small enterprises, including dentist offices, accounting agencies, technology startups, and local law firms, among others. By partnering with the right provider, advisors can customize an array of innovative plan features to fit each client’s needs. Advisors have the flexibility to develop defined contribution plans, like a conventional 401(k), a defined benefit plan or some combination of the two.

While defined benefit plans may be on the wane at mega-companies, they are an increasingly popular option among certain small business clients. Often this is because the business owner can set more aside for retirement in a defined benefit plan than with a traditional 401(k).

In many cases, the owner may be able to contribute well over $100,000 toward retirement in 2006 under a defined benefit plan. Thus, instituting a defined benefit plan can be a good way for an older business owner to “catch up” on retirement savings and transfer earnings in a tax-efficient way.

Defined benefit plans are designed to pay participants a set benefit during retirement. Since these plans are funded by the employer only, potential clients should generally have stable earnings and large discretionary income where tax benefits and/or retirement benefits are a priority. Many times, this means a small business owner with just a few professional staff members.

Entering the small business retirement plan market may not be as difficult as many advisors think. While providers have traditionally focused mainly on chasing larger plans, the small business plan market remains fertile ground.

Smaller firms are interested in finding a retirement solution, but are unsure where to go to find a plan provider. Advisors not only have an opportunity to make the most of this emerging opportunity, they can also help level the playing field for small business and give more people access to the retirement savings vehicles they deserve.