Balances in small business retirement plans have increased an average of 20 percent between 2007 and 2012 in the aftermath of the recession.
A new analysis by Fidelity Investments examined more than 200,000 small business accounts over a six-year period that used either a Simplified Employee Pension Plan (SEP-IRA), Self-Employed 401(k) or Savings Incentive Match Plan for Employees (SIMPLE-IRA) with Fidelity.
These plans are generally used by businesses with 10 or less employees and offer various tax advantages. The findings show that average balances in these small business retirement savings plans increased 20 percent since 2007, and jumped an average of 64 percent over 2008 when balances were generally at their lowest point. The analysis also indicates that small business owners and their employees continued to increase contribution rates as the economy emerged from the financial crisis five years ago.
“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 Fidelity vice president Ken Hevert in a statement. “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.”
In a review of savings behavior of small business accounts from early 2007 to late 2012, Fidelity examined account balances using a SEP-IRA, Self-Employed 401(k) or SIMPLE-IRA savings plan. It found that the average contribution to these retirement savings accounts increased across the board since 2007, with those using Self-Employed 401(k)s showing the largest increase of 21 percent to $20,950.
Employer contributions to SEP-IRAs increased 14 percent from 2007, reaching $13,250 at the end of 2012, while average employer/employee contributions to SIMPLE-IRAs increased the least, rising 4 percent to $6,000.
As a result of the increased contributions and market rebound, average balances also have grown since 2007. The average balance of Self-Employed 401(k) plans rose from $103,400 in 2007 to $119,500 in 2012—a 16 percent increase over six years—signaling a strong rebound for small business owners who are using retirement plans for savings purposes. SEP IRA balances increased by 17 percent to $71,300, while SIMPLE IRA balances increased 26 percent to $31,100.
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