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How Women Entrepreneurs and Their Employees Can Save for Retirement

Tips for business owners who think retirement plans are too hard to set up


One of the toughest things to do when you’re a woman running your own business is to save for retirement. Even 15+ years in as a solo entrepreneur, I wrestle each year at tax time to let go of the maximum amount my accountant determines I can sock away for what could be 20 or more years. For women small business owners with employees the issue is even thornier.

As a small-business employer — whether you have one person working for you or 100 — now you’re talking about not only your own retirement, but theirs. As I say in my new book, Great Jobs for Everyone 50 +, Finding Work That Keeps You Happy and Healthy…and Pays the Bills, when you’re a boss, it’s essential not to neglect retirement savings, and I’ll provide a few suggestions on how to do it shortly.

The Puzzle of Retirement Plans for Entrepreneurs

But let’s face it: offering your workers a retirement plan or even funding one for yourself can be a puzzle.

The roadblocks small business owners face offering retirement plans — and possible solutions for them — was the theme of a recent panel I watched via webcast, Bridging the Retirement Divide: Reaching Small Business Owners and Workers. Convened by The Aspen Institute and co-sponsored by the Bipartisan Policy Center and The Pew Charitable Trusts, the enlightening discussion brought together noted experts from the public and private sector. (You can watch the video below.)

The statistics the panelists presented were painful to hear.

Less than 30 percent of employees in a small business with fewer than 100 employees have access to a workplace retirement account, said James B. Lockhart III, co-chairman of the Bipartisan Policy Center’s Commission on Retirement Security and Personal Savings and a former deputy commissioner of the Social Security Administration.

And small businesses are more likely to offer paid time off (86 percent) and health care plans (61 percent) than sponsor a retirement plan, said panelist John Scott, who directs the Retirement Savings Project at The Pew Charitable Trusts.

Why Small Business Owners Don’t Offer Retirement Plans

Those numbers echo what I anecdotally discovered when I canvassed a dozen small business owners I know with fewer than 10 employees. The entrepreneurs — female and male — told me they have pondered offering a retirement plan to their employees, but felt they couldn’t afford the administration cost and didn’t have the time to make all the necessary choices to get one up and running with all the regulatory compliance required.

One of the Aspen Institute speakers has heard this, too. Oregon State Treasurer Tobias Read recounted this comment from state resident Chuck Wilson, owner of Beaverton Sub Station: “‘I want to do this, but I don’t have an HR department. I have sandwiches to make.’”

Small employers face “substantial burdens when trying to establish a retirement plan,” Lockhart said. “These obstacles— financial, administrative, and legal — make it difficult for employers to offer plans, even if they want to.” In the end, it’s often “too expensive and time consuming to small business owners who want to spend their time running their businesses,” he added.

The Connection Between Work and Wealth

And yet, it’s so very important.

“Savings at a workplace matters,” said speaker Jamie Kalamarides, Prudential’s president of Group Insurance. “Work and wealth are inextricably connected. When a retirement plan benefit is available, families have 15 to 16 times more wealth and assets than those without.”

Small business employees hunger for employer-sponsored retirement plans. A January 2017 Pew Charitable Trusts survey of 1,600 small- and medium-sized employers discussed during the panel concluded that when workers have access to plans, the vast majority will participate. Many of the employers surveyed said they didn’t offer one due to the expense and the lack of administrative resources.

A whopping 93 percent of respondents said they believed their employees would prefer higher salaries over better retirement benefits. That may be why many put a “greater priority on pay and other benefits — such as paid time off and health plans — rather than retirement plans,” Pew said.

“Health care benefits, not retirement ones, are what employees say they want,” noted panelist Allen Gutierrez, associate administrator of the Office of Entrepreneurial Development for the U.S. Small Business Administration.

What Would Help Entrepreneurs Offer Retirement Plans

When businesses without retirement plans were asked by Pew what would most motivate them to begin one, 67 percent said increased profits. Likewise, 60 percent said they’d be somewhat, or much more, likely to start a plan if there were increased business tax credits for doing so.

When Ida Rademacher, executive director of the Aspen Institute, asked the panelists to think about “pragmatic solutions,” the discussion turned to new types of retirement plans that could be integrated into a small firm’s payroll system; ways to tap technology for low-cost compliance and investment options and some new state efforts to broaden retirement coverage among residents.

“We get the feedback frequently and loudly that our plan needs to be designed to be ‘administratively light’ for employers,” said Katie Selenski, executive director of California Secure Choice, a workplace retirement savings plan program signed into law by California Governor Jerry Brown last year. “There is an eagerness out there from small business owners who are excited to offer a benefit that they can’t, or don’t offer. But they need the employer role to be as minimal as possible.”

New State Retirement Programs for Small Business Employees

Under the current rules for California Secure Choice, expected to be operational in 2019, employers of five or more employees will be required to provide a retirement plan for their workers or enable their workers to make an auto-enroll, direct payroll contribution into a personal Secure Choice Individual Retirement Account, a state-administered IRA.

California is one of five states to pass legislation requiring employers that don’t offer workplace savings plans to auto-enroll workers in a state-administered IRA. OregonSaves — run by Next Avenue 2017 Influencer in Aging Lisa Massena — just began rolling out statewide in October.

4 Retirement Plans for Entrepreneurs

Until new types of low-cost retirement plans for small businesses are more widespread, here are four options you can consider:

SEP-IRA It’s a tax-deductible retirement plan that’s ideal if you’re the company’s only employee. For 2017 tax returns, you can contribute up to 25 percent of your compensation or $54,000. If you have employees, you typically must also fund SEP-IRAs for them.

Solo 401(k) This retirement plan is for self-employed people without employees (except possibly a spouse). This year, you can contribute pre-tax, up to 25 percent of your pay, but your total contribution can’t surpass $54,000. If your spouse works with you, she or he can also put in the comparable amounts.

SIMPLE IRA It’s a retirement plan for small business owners with up to 100 employees. Contributions are pre-tax and taken straight out of paychecks, similar to a 401(k). Your contribution can’t top $12,500 in 2017; $15,500 if you’re 50 or older.

SIMPLE 401(k) This is also for firms with up to 100 employees. You and your employees may each contribute up to $12,500 for 2017; $15,500 for those 50 and older. You and your employees can borrow against the money and make penalty-free withdrawals due to financial hardship.

By Kerry Hannon
Kerry Hannon has covered personal finance, retirement and careers for The New York Times, Forbes, Money, U.S. News & World Report and USA Today, among other publications. She is the author of a dozen books including Money Confidence: Really Smart Financial Moves for Newly Single WomenGreat Jobs for Everyone 50+: Finding Work That Keeps You Happy and Healthy...and Pays the Bills, Getting the Job You Want After 50, Love Your Job: The New Rules for Career Happiness and What's Next? Finding Your Passion and Your Dream Job in Your Forties, Fifties and Beyond. Her website is kerryhannon.com. Follow her on Twitter @kerryhannon.

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