OPINION: Savings plan needed for small business workers

OPINION: Savings plan needed for small business workers

The Greenville News
December 10, 2017

Frank Knapp Jr., Guest columnist

Most employers in South Carolina are small businesses with fewer than 100 employees.  They provide goods and services to customers and important jobs for their employees.  As you have undoubtedly heard many times before, small businesses are the economic engine of South Carolina as well as the nation.

Unfortunately, small businesses often don’t have adequate resources to help their employees invest in their future retirement.   Offering a company retirement plan is expensive and can be an administrative quagmire for a small business.  Yet, small business owners are concerned about their employees not saving for retirement.

How bad is the problem in South Carolina?

Only about 25 percent of South Carolina’s small businesses offer a retirement plan to their employees.  That means that almost 500,000 employees of small businesses do not have access to a retirement plan through their employer.  Our state ranks 50th in 401(k) savings overall.  The result will be more of our citizens not being financially prepared for retirement and increasing the likelihood that they will be dependent on a taxpayer funded safety net.

What to do?

Eight other states facing this problem have taken steps to remove regulatory and operational barriers to enable small businesses to be part of the solution.

According to a 2016 survey by AARP, about 75 percent of South Carolina small businesses want to do their part.  Small business owners are willing to offer a voluntary, privately-managed, ready-to-go retirement savings plan to their employees.  Eighty percent of small business owners agree that South Carolina lawmakers should support a plan to make it easier for small businesses to offer such a retirement option.

What it might look like?

AARP South Carolina, the South Carolina Small Business Chamber of Commerce, private investment companies and other non-profit groups are discussing the creation of a 401(k)-retirement plan that would be made available to small business owners for employees.  There would be no administrative fee or required contributions for the business and it would be voluntary for both the business and workers.  The business would offer this plan to employees through payroll deduction, which experience has shown is 15 times more likely to be used compared to an individual IRA.

Most are familiar with the highly successful 529 College Savings Plan administered by our State Treasurer.  A “Work and Save” plan would be similar in that a statewide entity would administer the 401(k) savings program.  However, the employee contributions would be forwarded from small businesses not the worker.  Like the 529 College Savings Plan the retirement plan would belong to the employee and could be continued through payroll deduction with a new employer.

It is essential that all of us take responsibility for our retirement.  However, the creation of an easy to use vehicle to facilitate that personal responsibility is a goal that should be shared by our state leaders.  Small businesses have voiced their support and willingness to participate.

As we move into 2018, more work is being done to design such an employee retirement plan.  While obstacles exist, indications are that these can be overcome.

South Carolina’s small businesses will benefit by offering a retirement plan that will enable them to attract and retain employees. Our state economy will benefit from having financially healthy retirees.  And, of course, small business employees will benefit from being able to look forward to a more financially comfortable retirement.

Frank Knapp is the president and CEO of the South Carolina Small Business Chamber of Commerce.