Automatic savings

Small business owners can establish workplace savings programs

Americans don’t save nearly enough for emergencies or retirement, but we’re more likely to save if the money is automatically deducted from our paychecks.

People are much more likely to contribute to a retirement plan, for example, if they’re offered payroll deductions, according to AARP’s Public Policy Institute. In addition, seven in 10 working adults say they probably would participate in an emergency savings program via payroll deduction if their employer offered it.

1 Plan options Unfortunately, the smaller the business, the less likely it is to offer a workplace savings plan. More than one-third of private-sector workers don’t have access to workplace savings plans via payroll deduction.

Technology and competition have lowered the cost of setting up and administering these plans in recent years. Some startups and robo-advisors target the small-business 401(k) market, as have some large investment companies.

Costs vary, but they don’t have to be exorbitant: JPMorgan Chase, for example, recently announced a workplace plan for small businesses with monthly charges that start at $75 a month plus $5 per participant.

2 Beyond 401(k)s Small-business owners who want an even lower-cost option could set up payroll deductions deposited into SIMPLE (Savings Incentive Match Plan for Employees) IRAs, says Mackey McNeill, a certified public accountant and personal finance specialist who works with small businesses.

Workers can’t save as much in these as they can in a 401(k), but SIMPLE IRAs typically have few fees and regulatory requirements.

Another potential option is state-sponsored retirement accounts, which typically use payroll deductions to deposit money into Roth IRAs for employees. Three states — Oregon, Illinois and California — currently offer programs that are or will eventually become mandatory for most employers that don’t have retirement plans. Several other states are setting up these plans or considering it.

3 Emergency savings Emergency savings accounts, either as a stand-alone benefit or one that’s connected to a retirement plan, can help prevent costly withdrawals from retirement plans and improve workers’ financial stability. Several large companies now offer such accounts, while benefits companies including Gusto and Businessolver offer the option to smaller businesses.

Even if small-business owners aren’t ready to set up a formal emergency savings program, any employer that offers direct deposit can offer split deposit. That allows people to automatically divide paychecks between checking and savings accounts or among accounts at different banks.