Small business owners displayed very little knowledge about the structure and costs of retirement savings plans available to them, Fidelity Investments found in a survey released Wednesday.

About half of those who use a Self-Employed 401(k) plan did not know the maximum annual employer contribution amount allowed for that type of plan. Also, about 60% of those with SIMPLE-IRAs were not aware that employer tax filing is not required, according to Fidelity.

The Boston-based financial services firm polled more than 500 small business owners to see how well they group understood SEP-IRAs, SIMPLE-IRAs and Self-Employed 401(k) plans, the three plans that are considered most suitable for very small businesses.

Those results did not surprise Frank Nargentino, senior vice president of investments at JHS Capital, a firm that has small business owners among its clients. “Their main business is doing their business,” Nargentino said. “If you own a small electrical contracting company, anything that takes you away from going out and getting jobs is on the cost side of the ledger.”

Just 44% of respondents believed it was a business owner’s responsibility to provide a retirement savings plan to employees. Also, 74% of respondents believed such a plan would help retain employees, regardless of whether they owned a plan or intended to provide one. About 80% of owners who have SIMPLE or SEP-IRAs say their employees contribute to the plans, and reported a participation rate of around 84%.

Fidelity developed a calculator, available on its website, to help small business owners determine the 401(k) plan and contribution rates that best fit their companies. The tool is designed to educate small business owners about retirement savings options available to them, in case they want to take action or discuss options with their financial advisors.

“We think it will simplify the process by answering two questions: How much can I contribute to the plan?’” said Ken Hevert, a Fidelity vice president. “We try to combine the results for multiple plans, so it will allow an advisor to show clients the amounts available for three different plans side by side.”

Fidelity released the calculator along with an article on how small business owners can gauge retirement savings plan costs, and the survey findings.

Half of the polled businesses were staffed by a single owner, and on average, had between five to 19 employees. Just short of 70% of the pool had revenues under $500,000 a year, Hevert said.

For that crowd, 401(k) plans can be prohibitively expensive, because the fees run as high as $1,500 a year sometimes, Nargentino said.

Fidelity also found that 100 small business owners without a retirement savings plan said they thought they were too expensive, even though many plans have low or no administrative costs associated with them, Hevert said.

Donna Mitchell writes for Financial Planning.



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