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Myths Preventing Small Businesses from Starting 401Ks

401 k

Even though, many small business owners want to initiate employee benefit plans and 401K’s, only 24% of businesses with 50 or less employees offer a 401K program to their employees, while 99% of the businesses with more than 500 employees offer 401k program to their employees. The prime reason for this difference is myths circulating around small businesses about 401k program’s and their effects on small business. Though, the system is designed to put the small businesses at advantage, many business owners are reluctant to offer 401k program’s due to these myths and lack of knowledge.

Some of the most common myths are listed below:

  • The Program is Ineffective for Few Employees


If you have fewer employees, the program is less worthy for your business. This is the number one myth that is far from reality. The 401K program is designed to offer pension program’s to the employees of any size of the company regardless of the number of employees. There is no connection between the 401k plan and the size of the company.

In fact, not offering a 401k plan puts the small business at disadvantage. First, there are more opportunities for small business funding from financial institutions if the business offers 401k plans. In addition to that, financial institutions like banks offer benefits and opportunities to such companies. Second, research shows that employers can earn more tax benefits if they offer 401k plan. With more contributions from the employer in the 401k plan for employee benefits, the less the employer pays in taxes.


  • It is Unaffordable for Small Business


There are many external services that provide low cost assistance to small business for managing their 401k plan. According to statistics, a business with only 10 employees may have to pay just $100 a month if they are working with an affordable external provider.

Some of the providers also have special low cost packages designed for businesses with 50 or less employees that keep the expense of the business to nominal amount.


  • The Results are Just Employee Oriented


This is another common myth while the truth is opposite. The 401k system offers benefits to both employers and employees. The employers can take advantage of new and easy opportunities for small business funding from banks and other financial institutions against 401k implementation. Employers can also prevent higher tax deductions.

On the other hand, employees feel more secure about their future. Employees are also encouraged by the employer’s efforts in investing their future.

There are many other common myths about the 401k and small businesses but the truth is that the system is more beneficial for small businesses instead of large enterprises. The Economic Growth and Tax Relief Reconciliation Act of 2001 made the system more convenient and beneficial for small businesses and self employed.

For small businesses, the 401k plan comes up with more benefits and convenience. If you can dispel the myths surrounding the 401k plan, you can easily see that 401k plan is designed for all businesses irrespective of their size and number of employees without any ill effects on the business.


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