401(k) Plans Becoming More Accessible to Small Businesses

The retirement industry continues to evolve, creating additional opportunities for employers, especially small businesses, to help American workers create financial security for the future.  Two recent BenefitsPro articles highlighted recent changes and trends to help employers stay on top of new regulatory developments and shifting participant needs.

The first article discussed ways small businesses can offer retirement plan benefits to their employees thanks to recent changes implemented in SECURE 2.0.  Although the legislation was passed in 2022, many of its provisions take effect in 2024.  One such provision is the Starter 401(k), which allows employers who aren’t currently offering a 401(k) plan to do so.  A Starter 401(k) is a simplified version of a traditional 401(k) plan.  Its administrative costs tend to be lower, eliminating a common barrier to entry for many small businesses.  Additionally, Starter 401(k)s typically require less administrative work, since employees are auto enrolled at 3% of their salaries and there are no employer contributions.  Employees also have the option to contribute up to $6,000 per year, tax-free.

Moreover, employers should seek ways to automate the 401(k) process, which helps alleviate some of the administrative burden and makes these plans more accessible to small businesses overall.  These plans leverage the power of technology, which means smaller employers can offer a 401(k) that’s on par with larger organizations, without dedicating significant resources.  Automation also allows small businesses to launch a 401(k) plan faster, and technology allows them to have easy access to the data they need.

It’s important for employers to shop around for a plan that suits their needs and budget, and enlist the help of a financial advisor to find the right fit, according to the article’s author, Doug Sabella, CEO of Payroll Integrations.

A second BenefitsPro article, from TIAA, discusses 2024 trends in 401(k) plans that may also help make retirement benefits more accessible to small businesses in the context of shifting regulations and participant needs.  TIAA predicts the following major trends for the upcoming year that could impact recordkeepers, consultants, and plan sponsors:

  • Recordkeepers may place greater emphasis on participant services, an area they have not focused on before.  More consultants are bringing an advice solution to market in an effort to diversity their revenue streams.  Plan sponsors should pay attention to new service offerings, as well as gain an understanding of what those solutions are and how they align with their goals for their retirement plan.
  • Increased focus on retirement income products in retirement plans, such as the ability to provide a defined-benefit-like income stream from defined contribution plans, to help ensure Americans don’t outlive their savings in their post-working years.
  • Plan design changes are also likely to take center stage. SECURE 2.0 makes auto enrollment and auto-escalation mandatory for new retirement plans.  Roth account adoption is expected to increase as well.

With the majority of employers feeling responsible for employees’ financial well-being, solutions such as the Starter 401(k) and others that make retirement savings more accessible to a greater number of workers are key to shoring up America’s retirement system.  The trends and changes happening in the industry are worth watching, and plan sponsors should pay close attention to see how they can best harness new developments to help employees save for a more secure future.

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