Small Business Retirement Plans | Morgan Stanley at Work

In the U.S., just over half of private sector workers are covered by employer-sponsored retirement plans, and very few workers save without a retirement plan.1 Workers are understanding the importance of saving for retirement, a topic that is gaining more attention from lawmakers. As a result, many states require employers to offer some type of retirement savings plan, and workers are looking for jobs that offer that benefit.

According to a recent report, small companies cite several major reasons for not offering retirement plans.2 Some businesses claim that they do not have a solid cash flow to build on the plan. They worry about potential administrative responsibilities and costs associated with the setup, as well as the theory that workers prefer cash compensation or better health insurance to retirement benefits. However, with increasing pressure from governments and workers to provide retirement solutions, it’s important to familiarize yourself with the options available for your small business. You might be surprised to learn that offering retirement solutions might not be as expensive and difficult to set up as you might think.

Small businesses have several options when it comes to providing retirement plan benefits to their employees. This article aims to clear the confusion about the various retirement options, we’ll provide an overview of each type of plan and include a comparison chart outlining key features so you can make a more informed decision about the solution that best suits your business needs.

The three most common small business retirement solutions are:

  • 401(k)
  • September IRA
  • simple irra


401(k) plans are tax deductible for employee contributions. Contributions are automatically withdrawn from employees’ salaries and invested. Investment options in the plan are chosen by you as employer or trustee, and from a predetermined selection, employees can choose funds for their personal 401(k) accounts. Many companies offer so-called 401(k) matches, in which employers match employees’ contributions to a specified percentage as a benefit and as an incentive for employees to increase their own contributions. Employer contributions in a 401(k) plan are optional.

SEP/Simple IRA

Simplified Employee Pension (SEP) and Employee Savings Incentive Matching Plan (SIMPLE) IRAs are retirement plans that allow employees to save for retirement before taxes. Compared to 401(k)s, SIMPLE/SEP IRAs have fewer plan design options and features, but are easier to set up and manage, and provide a cost-effective way for businesses to start a retirement plan. However, employees are responsible for managing their own investments in SIMPLE/SEP IRAs, so it may be a good idea to work with a financial advisor who can discuss investment options and savings strategies.

While you may see value in providing employees with retirement solutions, you may still be concerned about costs. Your business may get tax benefits when you set up a retirement solution. If you’re concerned about the time it takes to administer your plan, some plans come with a pre-selected lineup of funds and service providers to monitor performance and complete administrative tasks and responsibilities, giving you more time to focus on running your business.

There are pros and cons to each retirement solution type, but a 401(k) may offer your company the most flexibility. Contribution limits are higher than SIMPLE IRA deferral limits, and you can incentivize your employees to save even more by offering a match. Plus, matching gives your company a competitive advantage: According to the U.S. Bureau of Labor Statistics National Salary Survey, more than half of employers that offer 401(k) plans offer matching.2 In the current job market, benefits are increasingly important for attracting and retaining top talent: 78% of employees are more likely to stay with their employer because of benefits.3

Morgan Stanley at Work provides small business 401(k) services, Help you and your employees achieve their retirement planning goals. Additionally, working with a provider like Morgan Stanley gives you access to financial advisors who can create a retirement plan that meets the needs of your company and employees, as well as offering a variety of investment options to suit different needs.

As a small business owner, you can help improve your employees’ financial future by offering retirement benefits and utilizing the program as an effective tool for attracting and retaining industry talent. If you already have a SIMPLE IRA plan and you are interested in converting the plan to a 401(k), you must complete the election by October for the new plan to take effect in the new calendar year.

Discuss your options with Morgan Stanley financial advisors and your legal and tax advisors and which type of retirement solution makes the most sense for your business and employees.

Morgan Stanley helps build financial confidence through thoughtful education, helping individuals embrace their tomorrows today.

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