Small businesses can help workers with auto saving plan

Donna Skemp of Bend, Oregon, struggled to save before she signed up for an automatic savings plan offered by her employer’s payroll services company. Now, some of her pay goes into a federally insured, interest-paying savings account that she can access any time with a debit card.

“It’s painless, and it’s so easy,” said Skemp, accounting and office manager for the nonprofit Every Kid Sports, which pays sports registration fees for children from low-income families.

Skemp is lucky; more than one-third of private-sector workers don’t have access to workplace savings plans via payroll deduction. Many small-business owners may think such plans are too expensive or complicated to administer. But that’s not necessarily so.

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 if they’re offered payroll deductions, according to AARP’S Public Policy Institute. In addition, 7 of 10 working adults say they probably would participate in an emergency savings program via payroll deduction if their employer offered it.

Unfortunately, the smaller the business, the less likely it is to offer a workplace savings plan. In the past, that made sense, because the cost of setting up and administering these plans could be high. Technology and competition have lowered costs in recent years.

Some startups and robo-advisers have been targeting the small-business 401(k) market, as have some large investment companies. Costs vary, but they don’t have to be exorbitant: JPMORgan Chase recently announced a workplace plan for small businesses with monthly charges that start at $75 a month plus $5 per participant.

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, said Mackey Mcneill, a certified public accountant and personal finance specialist in Bellevue, Kentucky, who works with small businesses.

Workers can’t save as much in these as they can in a 401(k), Mcneill notes.

The regular contribution limit for SIMPLE IRAS was $13,500 this year, compared to $19,500 for a 401(k). But SIMPLE IRAS typically have few fees and regulatory requirements, with only one IRS form to fill out annually, Mcneill said.

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

Skemp said she wishes she’d known years ago how important a regular, automated savings habit could be.

“I would be so far ahead of the game right now,” she said.