Retirement plans make big gains with small businesses

November 24, 2013

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Jing Wang

Jing Wang
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More small-business owners are offering 401(k) plans to their employees, as owners are apparently feeling more confident in their ability to provide this important benefit.

According to March 2013 data from the U.S. Bureau of Labor Statistics, 49% of full-time workers in small-business establishments have access to a retirement plan. That's a dramatic improvement compared to the U.S. Small Business Administration's 2006 Survey of Income and Program Participation, which found that only 28% of workers in small companies had a retirement plan available through their employer.

One reason for the growth in small business 401(k) plans may be that less expensive but still high-value plans are more accessible—such as turnkey plan solutions for small businesses like Vanguard Retirement Plan Access™, which an increasing number of small-business owners are turning to for plan services.

"Small-market plan sponsors want to offer a 401(k) plan to their employees for many reasons," said Jing Wang, head of Vanguard Retirement Plan Access. "In addition to feeling it's their responsibility as a business owner, and that offering a plan can help them attract and retain staff, business owners may offer a plan because of the tax considerations, and it can help them contribute more to their own 401(k) savings. So there are a lot of reasons for small-business owners to offer a plan."

Cost considerations

One factor that makes small business retirement plan growth even more impressive is the high cost companies can pay, compared with large corporations, for 401(k) plans. Ms. Wang estimated that the average all-in cost for a small plan could be as high as 1%-2%, whereas a jumbo plan's cost averages about 35 basis points (0.35%). Despite this, small-business owners are still trending toward offering plans—and many go so far as to pick up the cost themselves even when there are other options.

"Business owners can push the costs to participants by wrapping fees around investments," Ms. Wang said. "In that case, whoever uses the investments has to pay a percentage of the assets as a fee. But we also see a lot of plan sponsors paying the out-of-pocket fee themselves."

Ms. Wang also noted that the trend of fee disclosure driving fee transparency is helping small-business owners. Media reports and academic research spotlighting high fees paid by small plans is creating momentum to lower the cost for small-business owners to provide 401(k) plans to their employees, she explained.

Vanguard Retirement Plan Access on the rise

Growth of the small-business retirement plan industry is reflected in the numbers for Vanguard Retirement Plan Access. Introduced in October 2011 for retirement plans from start-ups to those with $20 million-plus in assets, Vanguard now oversees close to $3 billion in assets for nearly 2,000 companies and more than 50,000 participants. (Figures as of September 30, 2013.)

"More businesses are offering a 401(k)—or considering it—and Retirement Plan Access is designed to meet an important need for small-business owners," Ms. Wang said. Among Retirement Plan Access's offerings:

  • Plan sponsors get low costs, a full suite of recordkeeping services (including monthly and quarterly reports, compliance testing, and Form 5500 reports) and investment options (choosing among the entire suite of Vanguard funds and ETFs, plus 10,000 other investment options), and a dedicated point-of-contact account executive. Form 5500 services can be provided by Vanguard or a third-party administrator, and sponsors can also work with advisors for participant education, investment support, and possible fiduciary services.
  • Participants get online and mobile access to transactions, statements, the service center, and educational initiatives that encourage them to enroll and save, such as Vanguard's Education and News Center, investment-related webinars, and other individualized, easy-to-use tools designed to help guide them toward a more secure retirement.

And since participants often lack the financial planning skills, time, or interest to make appropriate investment decisions, Vanguard offers several low-cost programs that participants can choose if their plan offers it: an online advice service, a managed account advisory service, and a financial planning service. Each option can factor in participants' outside-the-plan assets, which may affect the selection of in-plan investments.

Even with the current growth in small business 401(k) plans, there's still plenty of room for expansion in the years ahead—as evidenced by the Bureau of Labor Statistic point that only about half of American small-business workers have access to a retirement plan option.

"Our first two years' experience with Retirement Plan Access proved to us that our low-cost, high-quality 401(k) retirement plan service offered by a trusted brand is being embraced by small-business owners because it meets their needs," Ms. Wang said. "We're also excited because there's so much more opportunity to expand the access to retirement plans to more and more American workers and help them save for their retirement."


  • All investing is subject to risk, including the possible loss of the money you invest.

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