Trending? Small Businesses Providing 401k Plans

According to the U.S. Small Business Administration, approximately 62.3 million Americans are employed by small businesses. For a sense of this scale, consider, for example, that Alphabet, the umbrella company known by most of us as Google, employs a mere 185,000 employees (give or take), while Meta (aka Facebook) employs just about 75,000 employees. Given how many people work at small businesses, it’s inspiring to see data pointing to an increase in the number of small businesses providing 401k plans. 

Reducing Financial Barriers

Bipartisan attention to reducing the obstacles small businesses face in sponsoring retirement plans seems to be moving the needle. In fact, the Wall Street Journal has reported “The Biggest New Fans of 401(k)s Are Small Businesses”. As Brian Graff, Chief Executive Officer of American Retirement Association, posted on Linked In, this is: “Extremely positive news on retirement plan coverage.Yes more work needs to be done, but between SECURE 2.0 incentives and states getting more involved the tide is really turning. Let’s keep this going so that every working American has a meaningful opportunity to achieve a comfortable retirement.” 

Digging into the trends, Sherin Shibu at Entrepreneur explains: “Gusto, a payroll and benefits provider that works with smaller employers, estimated in a report…that the number of workers at small firms with access to 401(k) plans has jumped by nearly six million since 2019.”  Specifically, it’s now estimated that “21.2 million employees at firms with two to 99 workers have access to a 401(k) account, up from 15.6 million in 2019.” Further examining the data and trends, Shibu shares these highlights:

• Retirement plans are now showing up at places that traditionally offered only a paycheck: farms, fitness and sports clubs, small professional offices and other Main Street operations. The expansion is starting to close one of the biggest gaps in the U.S. retirement system, where workers at large corporations long enjoyed access to tax-advantaged savings while many small-business employees did not. 
• A key driver of growth is a generous package of federal tax incentives created by the original SECURE (Setting Every Community Up for Retirement Enhancement) Act, signed in 2019 and expanded by SECURE 2.0 in 2022. For example, for employers with up to 50 workers, SECURE 2.0 covers 100% of 401(k) startup costs through tax credits, up to $5,000 per year for the first three years. That effectively allows many small firms to launch a plan with little to no net out‑of‑pocket administrative expenses. 

Ramping Up: Small Business 401k Plans

Looking forward, research from the retirement industry predicts that plans sponsored by small businesses with just a handful of employees will grow especially quickly. For example, Cerulli Associates anticipates that there will be 30% more growth in these “micro” 401k plans over the next five years. Services that leverage technological advancements are also on the rise, making it easier and more efficient for small business owners to handle payroll and benefit functions. For example, Gusto offers an “all-in one” HR platform, and provides advice and tools for getting a 401k plan off the ground. 

Colonial Surety Company, a leading national expert on the ERISA Fidelity Bonds required of every retirement plan sponsor by the Department of Labor (DOL), also offers support for small business owners. In fact, Colonial Surety Company provides the only integrated solution that covers retirement plan sponsors for both compliance and personal liability. Our affordable All-in-One Packages for retirement plan sponsors from businesses of every size include:

• ERISA Fidelity Bond: 100% compliance with DOL bond requirements
• Fiduciary Liability Insurance: Up to $1,000,000 in coverage for defense and penalties in the event of allegations related to errors like those listed above.
• Cyber Liability Insurance: $50,000 of coverage included at no extra cost to address the DOL’s strict standards for response and notification services following cybersecurity incidents. (Colonial Surety Company’s Cyber Liability Insurance explicitly covers both the retirement plan and this business.) 

Good To Know: Fraud vs Honest Mistake?

ERISA bonds are required to protect retirement plans from “bad people” doing “bad things” (i.e acts of theft and fraud) with the hard earned retirement savings of workers. Though it is of course essential to comply with the ERISA Bond requirements of the DOL, the vast majority of retirement plan sponsors have no intention of committing acts of fraud or theft. Unfortunately, what many plan sponsors can experience is the cost of honest mistakes under the high standards of ERISA. Investigations and penalties are out of pocket costs for sponsors—and they add up quickly. For example, ERISA legal defense alone can end up costing upwards of $600 per hour. 

Keep in mind too, that even with outsourcing the services of your company retirement plan, under the high standards of ERISA, the sponsor remains a fiduciary, and retains serious obligations: you are legally required to properly select and oversee all of your providers (and even their cybersecurity protocols). If they make a mistake and you didn’t have a process in place to catch it, the DOL can hold you responsible.

Don’t wait for a DOL audit, a participant complaint, or a creative plaintiff attorney to allege you’ve made mistakes and accuse you of a fiduciary breach. Secure your business, your plan, and your personal assets today. Colonial Surety Company makes it easy, speedy and affordable: 

Quote and Obtain Fiduciary+Cyber Liability Insurance Package

Why Colonial Surety Company?

• A-Rated Excellence: Rated “A” (Excellent) by A.M. Best.
• Legacy of Trust: Protecting business owners since 1930.
• National Reach: Fully licensed and Treasury-listed across all 50 U.S. states and territories.