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High cost of benefits
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February 7, 2000: 2:04 p.m. ET
Small biz owners say health care and pension reform will help them and workers
By Staff Writer Hope Hamashige
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PHOENIX (CNNfn) - In today's tight labor market, most business owners, small business included, recognize they have to offer better salaries and better benefits to attract and retain employees. Nevertheless, small business owners and advocates say there are significant impediments for them to do so.
Among the changes small business owners gathered here last week, at the annual meeting of National Small Business United, would like to see are an increase in the amount they can contribute to 401(k) plans and 100 percent deductibility of insurance premiums for themselves and their employees.
Currently, 44 percent of the uninsured people in the United States are owners of companies that have fewer than 50 employees, according to the Cato Institute. It's ironic that, at a time when employers are offering better, more comprehensive benefits to attract qualified workers, many owners are choosing not to cover themselves because it is, simply, too expensive.
"I would have bad teeth and poor health if it weren't for my wife," said CPA Paul Hense of Grand Rapids, Mich. Hense is covered under his wife's plan, but doesn't have one for himself because the cost is prohibitive, he said. He does, however, cover the three people who work for him.
In search of parity
The catch phrase for what small business owners seek, when it comes to offering employee benefits, is "parity." They want the same consideration big business gets when it comes to offering benefits to employees.
Most big businesses get to deduct the cost of all health insurance of both owners and employees from their taxes. Small business owners, most of whom file taxes as sole proprietorships, cannot deduct even one penny of their own health insurance, and are only allowed to deduct 25 percent of the cost of their employees' insurance.
"They should be considered as employees, not owners, so they can participate in their own plans," said Gary Kushner, an employee benefits consultant based in Kalamazoo, Mich.
Small businesses are in a difficult situation because they are want to offer more comprehensive benefits at a time when health care costs, after leveling off for several years are again on the rise.
Impediments to retirement plans
Likewise, small business owners and advocates say that, although they need to offer employees better retirement benefits to attract and retain workers, significant restrictions can keep them from doing so.
In many cases, small business owners do not want to create 401(k) plans because the cost of administering a retirement plan outweighs the benefits to the owners.
Under current law, small business owners who contribute to a 401(k) plan must make that plan available to their employees. Many small business owners, however, do not contribute to such retirement plans because there are severe limits on the amount they are allowed to contribute.
Currently, they are allowed to deposit about $10,000, or 10 percent of their own salary, into a 401(k) plan. The cost of administering a plan can run up to $5,000 a year, explained Midland, Mich.-based human resources consultant Sharon Miller, which makes such plans less attractive to small business owners.
"If I am going to pay say, $5,000 a year to administer this plan, I don't want to be limited to putting only $10,000 a year into it," she said.
That is one of the main reasons small employers don't offer 401(k) plans to employees, she said. "If they can deposit more money for themselves, they are more likely to make 401k plans available to their employees, too," she said.
Instead, small business owners plan to propose that the law be changed to allow them to deposit up to 25 percent of their salary in 401(k) plans, which would make it worthwhile to many small business owners who currently do not participate in a 401(k) plan. 
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