In ACA’s wake, SBOs heightening focus on retirement benefits

The Affordable Care Act (ACA) is indirectly affecting workers’ retirement preparedness at small businesses, according to a new survey.

Nationwide Financial discloses this finding in a summary of results from its “Small Business Owner Study.” Conducted by Harris Poll in June 2015, the online survey gathered responses from 500 U.S. small business owners, defined as companies with fewer than 300 employees. Of small business owners who plan to offer retirement benefits, 25 percent say the Affordable Care Act (ACA) has made health benefits less attractive to employees. And 18 percent say the ACA has decreased company health care costs.

Of SBOs who currently offer retirement benefits and plan to increase company contributions to their employees’ 401(k) plans, 33 percent say the ACA has made health care benefits less attractive to employees. And 30 percent say the ACA has decreased the company’s health care costs.

“Lower health care costs means small business owners have the option of contributing more to their employees’ retirement,” says Joe Frustaglio, vice president and leader of private sector retirement plan sales at Nationwide.  

As the ACA makes health care benefits less relevant to small business employees, business owners have to find a new way to recruit and retain employees. There is mounting evidence that 401(k) plans are filling that role. 

Among small business owners:

• 59 percent disagree that retirement benefits are not important for attracting and retaining employees.

• More than two in five (42 percent) of small business owners who say they plan to increase contributions agree their company’s 401(k) plan is now more important for attracting and retaining employees as a result of the ACA.

• About one-quarter (24 percent) of small business owners who will offer retirement benefits in the future say their company’s 401(k) plan is now more important for attracting and retaining employees because of the ACA. 

“As the health care insurance marketplace becomes more commoditized, employers are looking for new tools to attract and retain key employees,” said Frustaglio. “Employers who are using 401(k) plans as a recruitment tool are ahead of the game because we’re seeing more company owners asking how they can do this.” 

The survey adds that more than 8 in 10 (84 percent) of small business owners (SBOs) believe American workers are facing a retirement readiness crisis. However, 60 percent of SBOs believe that their own employees are on track to retire. 

Additionally, nearly two-thirds (63 percent) of small business owners say providing retirement benefits to employees is important. But, in reality, only a third (34 percent) of SBOs offer these benefits to their employees. 

Small businesses play an outsized role in helping workers prepare for retirement. According to the U.S. Small Business Administration, small businesses:

• make up 99.7 percent of all employers;

• employ nearly 50 percent of all private-sector workers (48.5 percent); and

• create 63 percent of the net new private-sector jobs in the U.S.

“Small businesses are the lifeblood of our economy and keep our communities moving forward,” said Joe Frustaglio, vice president and leader of private sector retirement plan sales at Nationwide. “All workers deserve access to retirement savings options, and it is evident that we’ve reached a point in this country where people are starting to pay attention to the fact that a retirement savings problem exists. Employers need to provide access and education, and workers need to take advantage of what’s available to them.” 

Help is on the way 

Of the SBOs who offer retirement benefits, including 401(k) plans, to their employees, 67 percent say they plan to increase their company contribution to employees’ 401(k) plan. Of the SBOs who don’t now offer retirement benefits, 30 percent say they plan to do so.

If that happens, then more than half (54 percent) of SBOs will offer employees retirement benefits.  A positive economic outlook is a driving force behind this. Half of SBOs who plan to start offering retirement benefits say they will do so because they expect sales or revenue to increase in the next 12 to 24 months (50 percent). And 32 percent believe the U.S. economy will improve in the same timeframe.