In recent years, millions of people across the country have seen their retirement savings take significant hits largely as a result of the financial downturn, but new research shows that among small businesses, contributions to these plans are once again expanding.
In an analysis of more than 200,000 small business retirement accounts over the past six years, it was found that the average balances have grown about 20 percent since 2007, according to a report from Fidelity Investments. Moreover, because many retirement savings accounts were reduced significantly and fell to their lowest point in 2008, the current levels are up some 64 percent from the levels observed at that time.
Part of the reason for this is obviously that the economy has made significant strides and major improvement has been seen across nearly all sectors since the recession reached its lowest point, the report said. However, during the last five years, the rate at which small business owners and workers continually increased contributions to these accounts has grown significantly in the years since that time.
"The recent recession had a significant impact on many small businesses and continues to pose obstacles in today's economy, but we are encouraged to see that both owners and their employees have remained committed to saving for retirement," said Ken Hevert, vice president at Fidelity Investments. "For many small business owners, selecting a retirement savings plan that is both easy to administer and low-cost is critical. Additionally, an appropriate plan can help maximize retirement savings, as well as to retain valuable employees and provide key tax deductions."
Specifics behind the improvements
In general, the improvements in contributions to small business retirement accounts have been seen more or less across the board since the end of the recession, the report said. For instance, the average amount of funds added to Self-Employed 401(k) accounts rose 21 percent to a total of $20,950 during that time. Meanwhile, employers' contributions to Simplified Employee Pension Plan IRAs rose 14 percent to a total of $13,250 through the end of 2012. Savings Incentive Match Plan for Employees IRAs have seen contributions increase modestly, by just 4 percent to $6,000, but still rose nonetheless.
As a result of all these growing contributions, the average amount of money being held in these accounts is likewise rising significantly, the report said. For instance, the average balance on Self-Employed is up 16 percent over the six-year period, rising to $119,500 through the end of last year from $103,400 in 2007. SIMPLE IRAs, however, had the largest increase on a percentage basis, climbing 26 percent, but also the lowest average balance at just $31,100. SEP IRA accounts fell in the middle, with balances spiking 17 percent to $71,300.
Many small business owners may find that offering employees the ability to have access to accounts such as these can be important for attracting top-quality candidates for open positions, as these can prove a significant benefit, particularly for those which offer contribution matching, which serves to essentially double the amount employees are putting into their retirement funds.
However, doing so can also be rather expensive for even small employers with relatively few workers, meaning that owners will have to consider the ways in which these options will affect their abilities to grow going forward. They may also want to take into account the ways in which expanding payroll will affect their small business insurance needs, as it might require more expensive workers' compensation or general liability insurance policies in the future.