32561822_sMost small business owners would agree there are a number of benefits that come from offering a 401(k) plan. A recent J.P. Morgan study highlighted these noteworthy benefits of offering a 401(k):

  • They help employees achieve a financially secure retirement.
  • They help employees retire on time.
  • They help to retain quality employees.
  • They allow employers to demonstrate their level of caring about employees.
  • They increase general financial security of employees.
  • They aid in recruiting top talent.
  • They improve overall employee engagement.

Seventy five percent of those surveyed said they considered employee participation rates to be a key measurement of plan success. It’s clear that 401(k) plans are working as planned for small businesses, since study after study shows that participation rates are trending higher.

However, while participation is improving, the rate at which each employee contributes is not. The J.P. Morgan study also found the average annual contribution rate for employees has fallen from 8% down to 7.2% . One explanation for the dip is the increased use of automatic enrollment of employees, which is gaining popularity. The reason? The assigned automatic contribution rate might be lower than what an employee would choose on their own. The authors of the study still believe that auto-enrollment is a good thing, but business owners should consider starting out at a higher contribution percentage and set automatic escalators a little higher, as well.

Even though the average percentage contribution has gone down slightly, participation in 401(k) plans is up—this is great for both small businesses and their employees.

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