Summary of Findings - 1998 Small Employer Retirement Survey

The Small Employer Retirement Survey (SERS) is the first in-depth retirement planning survey of small employers. It reveals that small employers feel little pressure from their employees to offer retirement savings plans. Combine this with uncertain revenue and administrative cost and burdens, it appears that in order to address the issue of plan availability among small businesses, we must both address cost concerns of employers and increase demand for such programs among employees.

Companies not offering retirement savings plans to their employees do not believe that their lack of a plan has an adverse impact on their ability to hire quality employees or on employee attitude and performance. Contrast this with the majority of small employers who offer plans—a majority of whom say that competitive advantage in hiring and the positive effect on employee attitude and performance are major reasons they offer a plan.

While many small employers cite cost as a major reason that they do not offer a plan, the SERS reveals that concerns about cost may be based in misinformation. In a four-item true/false quiz about retirement plans, two of five employers answer no more than two questions correctly. Just one-quarter correctly answer all four questions. Between one-third and one-half do not know that a plan can be set up for less than $2,000, that they do not have to match employee contributions dollar for dollar, or that they can share the administrative costs with their employees.

Employer Perceptions of Employee Preparedness for Retirement

Individuals who make employee benefits decisions for small businesses overwhelmingly believe that most people in the United States do not save enough money to live comfortably in retirement (87% each of those with plans and those without). When asked about their own employees, though, there is a marked difference between companies that offer retirement plans to their employees and companies that do not. A majority of the small businesses that offer retirement plans feel that their employees are very well (6%) or somewhat well (52%) prepared for retirement. Only 8% feel their employees are not at all prepared. Among those that do not offer retirement plans, only 24% consider their employees to be either very well (3%) or somewhat well (21%) prepared, while two-thirds feel they are either not too well (39%) or not at all (29%) prepared for retirement.

Companies That Do Not Offer Retirement Plans

Most small businesses that do not currently offer a retirement plan nevertheless claim to have some familiarity with the types of plans that could be offered. More than eight out of ten feel either very familiar or somewhat familiar with 401(k) plans (87%) and profit-sharing arrangements (81%); majorities also claim to be at least somewhat familiar with employee stock ownership plans (52%) and traditional defined benefit pensions (51%).

Other types of retirement plans that are familiar to many include savings incentive match (SIMPLE) plans (42%), Keoghs (42%), and SEPs (33%). Less familiar plans are thrift savings plans (21%), 403(b) plans (16%), and money purchase plans (12%). In fact, two out of three report that they have never even heard of a thrift savings plan (65%); even larger shares are unaware of 403(b)s (70%) and money purchase plans (72%).

Only 15% of the small businesses that do not offer a retirement plan indicate that they have offered plans in the past. However, one-half say they have seriously considered offering their employees a retirement plan (49%). An equal number report being solicited by retirement plan service providers in the past two years (50%).

There are a number of reasons small businesses do not offer retirement plans, no single one of which is predominant. Many suggest that one of the major reasons they do not offer a retirement plan is that their employees prefer to have that spending directed into wages or other benefits, with 50% calling this a major reason they do not offer a plan and 22% citing it as the single most important reason.

At the same time, financial issues are just as likely to play a major role in a company’s decision to not offer a retirement plan. One-half of small businesses that do not currently offer a retirement plan report that one of the major reasons they have no plan is that revenue is too uncertain to commit to a plan (51%), and 16% say it is the single most important reason. Nearly as many cite the prohibitive expense of required employer contributions (45% call it a major reason; 12% call it most important) or the belief that vesting requirements direct too much money to short-term employees (42% major reason, 9% most important) as reasons for not offering a retirement plan.

Administrative burdens also play a role, with one of three indicating that major reasons they do not offer a retirement plan include excessive government regulations (35%) or the expense of starting and administering a plan (35%). Nearly as many describe excessive paperwork as a major factor (27%). Fourteen percent (14%) say that the expense of starting and administering a plan is the most important reason they do not offer one, 4% say government regulations are the reason, and just 2% say too much paperwork is the most important reason.

Reasons for not offering a retirement plan that are mentioned less frequently include: benefits to the owner are too small (19% major reason, 3% most important); it does not reward performance (17% major reason, <.5% most important); and not knowing where to start (13% major reason, 2% most important).

Small businesses that have decided not to offer retirement plans generally see that decision as having little impact on their employees. Only 15% believe that not offering a plan has had a major effect on their employees’ knowledge of, and ability to prepare for, retirement. Nearly one-half say it has had no impact at all (47%). Similarly, majorities say that their lack of a retirement plan has had no impact on their ability to hire and retain good employees (56%) or on employee attitude and performance (60%). Only one in ten say it has had a major impact on hiring and retention (12%) and employee attitude (10%).

Only 17% of the small businesses that do not currently offer a retirement plan suggest that they are very likely to offer one in the next two years. Another 25%, though, describe this as somewhat likely. Still, most state that they are either not too likely (24%) or not at all likely (32%) to start a retirement plan for their employees.

Financial incentives could play a role in prompting small businesses to consider offering retirement plans. Two out of three companies that do not currently have a plan report that they would seriously consider starting one if doing so allowed them to take advantage of a business tax credit (64%). Likewise, 66% suggest that their company would consider offering a plan if they were to experience an increase in profits. About one-half say that they would give serious consideration to a retirement plan if it allowed key executive to save more (49%).

Other factors that could help make small businesses consider offering a retirement plan include reducing the administrative requirements (50%) and easing the requirements for vesting (40%). In addition, one-half of the small businesses that do not offer a retirement plan report that they would consider doing so if their employees demanded it (49%).

Many respondents also have incorrect perceptions about retirement plans. While four out of five know that a plan can be terminated (82%), only three of five know a plan can be set up for less than $2,000 (64%) or that administrative expenses can be shared with the employee (60%). Approximately one-half know they do not legally need to match all employee 401(k) contributions (55%). Only one of four respondents answers all four of these true-false questions correctly (28%). Equal numbers are able to answer three (28%) and two (25%) questions correctly. Fourteen percent (14%) are able to respond correctly to only one, and 5% are unable to answer any questions correctly.

Companies That Offer Retirement Plans

One of ten of the small businesses that offer retirement plan benefits to their employees began doing so less than a year ago (8%), and one in four began doing so between one and five years ago (24%). Another one-quarter have offered a plan for 10 to 19 years (24%), while nearly as many have offered one for 20 years or more (20%).

The vast majority of companies describe their retirement plan as a defined contribution plan (92%)—only 15% offer a defined benefit plan (8% offer both types). Plans are serviced through a variety of sources, including brokerage companies (31%), mutual fund companies (29%), insurance companies (25%), and banks (14%). Almost one-half say they use a third party administrator (44%).

About one-half of those offering retirement plans also report that their employees receive some type of on-going retirement savings education, either from the retirement plan service provider or from the company itself (45%).

401(k) plans are the most frequently offered type of defined contribution retirement benefit (61%). One-half as many small businesses offer some type of profit-sharing plan (31%), and 12% report having a savings incentive match plan (SIMPLE). Fewer than one in ten describe their defined contribution plan as a SEP (9%), 403(b) (8%), ESOP (6%), money purchase (4%), thrift savings (4%) or Keogh (1%).

Not surprisingly, small businesses often say that the most important reason they offer a retirement plan is to provide retirement income for employees—three out of four call this a major reason for offering a plan (78%), and 41% choose it as the single most important reason. At the same time, a majority indicates that major reasons for offering retirement benefits include the effect it has on employee attitudes and performance (68% call this a major reason; 16% call it the most important reason) and the competitive advantage it gives the company in recruitment and retention (56% ‘major reason,’ 24% ‘most important reason’). Reasons mentioned less frequently include tax advantages for employees (39% ‘major reason,’ 5% ‘most important reason’), tax advantages for key executives (29% ‘major reason,’ 8% ‘most important reason’), and employee demand (25% ‘major reason,’ 4% ‘most important reason’). Eight of ten small businesses offering plans report that their retirement plan has had some impact on hiring and retention (79%) and on employee attitude and performance (81%). However, only about one-third say it has a major impact on hiring and retention (35%) or employee attitude (30%). Meanwhile, nine of ten say that their retirement plan has had some impact on their employees’ ability to prepare for retirement (90%), including a majority who say that impact has been major (54%).

Businesses currently offering retirement plans do not appear likely to make major changes in their plans in the near future. Only 16% anticipate that they will add a new type of plan in the next two years, and almost none (4%) report that they might drop one or more of the plans they currently offer.

About two-fifths of those who offer retirement plans indicate that they would be interested in learning more about a simplified defined benefit plan with minimal administrative costs (38%).

Comparative Profiles: Companies With Retirement Plans and Those With No Plans

Small businesses offering retirement plans to their employees tend to have higher revenues than businesses that do not have retirement plans. More than one-half of the companies with retirement plans (53%), but only one-third of businesses without plans (36%), report that they have annual revenues of at least $1 million. Small businesses that offer retirement plans are less likely to be family owned (47%, compared with 64% of those that do not offer plans) and are less likely to be owned by just one person (19%, compared with 30% of those that do not offer plans).

Small businesses offering retirement plans tend to employ different types of workers—more than eight of ten employers say that, on average, most of their employees are 30 years old or older (82%, compared with 68% at companies that do not have retirement plans); more than three-quarters say most of their employees earn an average of $20,000 per year or more (78%, compared with 62% at companies without retirement plans); and 56% indicate that most of their full time employees have some education beyond high school (compared with 35% of companies without retirement plans). In addition, 88% of the companies that offer retirement plans estimate that most of their full-time employees stay with the company at least three years (compared with 67% of companies that do not have retirement plans).

Additionally, most of the small businesses offering retirement benefits also offer paid vacation (99%), health insurance (97%), life insurance (79%), paid sick leave (72%), and disability insurance (62%). Less than one-half offer education or tuition assistance (42%) or child care assistance (12%). The only employee benefits offered by a majority of the businesses that do not have a retirement plan are paid vacation (88%) and health insurance (70%). Less than one-half offer paid sick leave (47%), life insurance (38%), disability insurance (38%), education or tuition assistance (26%), or child care assistance (5%).


The Small Employer Retirement Survey (SERS) was designed to gauge the views and attitudes of America’s small employers regarding retirement plans and related issues. The survey was conducted in March 1998 through 15-minute phone interviews with 601 companies (301 with a retirement plan, 300 non-plan).

The SERS was co-organized by the Employee Benefit Research Institute (EBRI), a private, nonprofit, nonpartisan public policy research organization; the American Savings Education Council (ASEC), a partnership of more than 250 private- and public-sector institutions dedicated to raising the public awareness of what is needed to ensure long-term personal financial independence, a part of the EBRI Education and Research Fund; and Mathew Greenwald & Associates, Inc. (MGA), a Washington, DC-based market research firm. The 1998 SERS data collection was funded by grants from 12 public and private organizations, with staff time donated by EBRI, ASEC, and MGA. SERS materials and a list of underwriters may be accessed at the EBRI website: www.ebri.org/sers.