The vast majority of Americans work for small businesses, and that comes with some tradeoffs. In one respect, it's a great indication that entrepreneurism is alive and well in this country. But in the absence of the resources of large companies, programs that can benefit employees - such as retirement savings accounts, for example - can become less readily accessible.
A survey from LPL Financial polled more than 700 small business owners (defined as those with 25-99 employees) about their retirement plan offerings. It found that 32 percent of businesses did not offer retirement plans. Predictably, the number one reason was cost (39 percent), followed by complexity (19 percent). Approximately 25 percent also stated that employees weren't interested.
I recently spoke to Peggy Ho, executive vice president and deputy general counsel at LPL Financial. She told me that, in many cases, it's simply too difficult for small businesses to provide these types of offerings.
"When it comes to running a small business, cost and complexities are major factors," she said. "Large corporations have the resources - human capital, financial capital, etc. - to put these types of programs in place, and that makes it much easier. So what it really comes down to for these small business owners is prioritization of resources."
If that seems like an insurmountable problem, fear not. It's a job that can be made a lot easier with tax incentives.
The survey found that 91 percent of small employers without a plan would be at least somewhat more likely to start a plan if the cap on the current tax credit for starting a plan were increased from $500, where it currently stands, to $5,000 and adjusted to cover all initial costs. That $5,000 figure is one that many bipartisan plans have lauded as an attainable figure, and Ho says that reaching that goals and encouraging more businesses to start these plans would be integral in getting employees to save.
"Based on current trends in American wages and the cost of living, it's clear people have competing priorities, and I would say the vast majority of American workers are just trying to get by," Ho explained. "If you're faced with saving a little of your paycheck and putting it towards a retirement that's 30 years away, or spending the money and buying little Jane a basketball, it becomes a really hard choice. So that's why having ways to nudge people towards making decisions that benefit them in the long term is so important."
Automatic enrollment is one way companies can get their employees to save more, but the survey found that only 53 percent of small business owners that have a retirement plan actually do so. But again, it's a situation that businesses say could be remedied by a tax credit. Eighty-six percent of small employers with a plan would be at least somewhat more likely to offer automatic enrollment if they were eligible for a $500 credit for doing so. Currently, no tax credit is offered for auto enrollment.
Of course, like any tax incentive, the benefit has to outweigh the financial investment by the government for it to become a reality. Ho says that continuing on the current path could have severe consequences, and if a tax incentive is a way around elderly Americans falling on hard times, it is worth seriously considering.
"I don't think it's a surprise to anyone that Americans are less prepared now for their retirement now than ever before, so there is a growing risk of folks retiring not only without the means to live the lifestyle they're accustomed to, but to live above the poverty line," Ho said. "I do think there are solutions that can address these risks, and that's where I think raising these tax credits can really make a big difference."
Time will tell if the bipartisan support that the increased tax credit has garnered will turn into a new reality for small business owners. But in the meantime, it might not be a bad idea to tuck a little more of that next paycheck away for a rainy day.