You can lead a small business owner to water, but you can’t make them set up a 401(k) plan

The retirement plan tax laws have never been better, automatic enrollment makes it easy for employees to contribute to a 401(k) plan, and the new Qualified Default Investment Arrangement (QDIA) gives participants access to professional investment managers. But first, there’s gotta be a retirement plan. And sadly, few small business owners consider it their responsibility to help their employees prepare for retirement.

A recent survey conducted by Harris Interactive on behalf of ShareBuilder 401(k) found that only 17% percent of small business owners responded that they felt a strong obligation to offer retirement benefits (a 401(k) or other retirement plan). In fact, 46 percent reported that they felt no obligation at all.

This isn’t a surprise to me since I’ve experienced the same thing working with 401(k) plans since their inception in the early 1980s. Here are some of the objectives I hear from business owners followed by my response:

• "Retirement plans are too expensive to set-up and administer.” – There are retirement plan service providers that are structured to provide cost-effective services to small businesses.
• "It still seems expensive to set-up and administer a plan." – Check with your accountant and see if your business qualifies for a tax credit for establishing a retirement plan.
• "I have to make a contribution every year.” – Retirement plans can be set up so that contributions are discretionary”.
• "I have to provide the same contribution to the employees as for me.”.– Not necessarily since there are allocation methods that can be used to provide larger contributions to the owners and still pass IRS compliance tests.

The ShareBuilder survey found that just 14% of small business owners offer a 401(k) plan, and 63% do not offer any form of retirement benefits to their employees. No surprise there. But here’s the interesting part. When it comes to their own personal retirement security, almost half of the business owners (47%) indicated they are not confident that they are prepared for retirement. Go figure!