T-6N 3 9 835 I0 2472 EBRI 6 EBRI Pension Coverage Among Small Employers: , ! Pension Coverage Among 'Small Employers: Facts, Figures and Analysis The data presented suggest that the provision of pensions by employers for plans with 50 to 99 employees. Presumably, the economic benefits of sharing most strong determine sharply plans. increase whether for Only infirms the6thepercent proportion with employment fewer of small of than share managers firms 25ofoffered workers. and smallowner-managers afirms multiemployer The is sharelikely combined ofplan service to and be is Internal profitable Revenue firm mightService also be(IRS) a growing tax firm. records The for NFIB corporations, data base does sole not industries although workers in smaller firms are less likely to work in small-firm full-time workers workers. in These large and differences medium-sizedin the fimnstypein of 1985workforce can be compared engaged by to Facts, Figures and Analysis Statement of Verbal Statement of with I00 or fewer employees is influenced by business considerations. ha observed higher. ving a only Very plan after large would many firms haveyears. employ to be greater a smaller forpercentage small employers of construction than for workers large manufacturing 25 employment percent offered increases and more defined most likely benefit sharply to work plans. forinfirms services. with 1,000 or more workers. In have proprietorships information andabout partnerships profitability to employment but provides and payroll information data. Tabulations on sales. that large provided and smallworkers firms insuggest small firms that there using the may BLS also andbe NFIB differences surveys mentioned in their Summary of Statement Emily S. Andrews, Ph.D. Emily S. Andrews, Ph.D. Research Director Emily S. Andrews, Ph.D. corporations. Consequently, public policy options that would reduce the costs of providing a wages (onlyNonetheless, and 2 percent) benefits.even and atoday highermost proportion employers fo are othersmall. production According and craft to 1979 workers tax very large firms, 39 percent of employees worked in manufacturing in 1983 and based Statistical earlier.on these According analysis data indicates were to these firstthat surveys, published firms almost with in the higher all 1986 large sales Small are and Business uniformly medium Report. firm, mores Research Director Research Director Employee Benefit Research Institute Employee Benefit Research Institute Employee Benefit Research Tnstitute plan files, (27 Tabulations or percent). 38 increase percent ofLarge the theofbenefits 1983 employers someCPS of 2.6 pension pension are million also supplement plancorporations more provision likely suggest fohad to that r small have fewer employees employers unionized than who5 Why Don't Employers Have Pension Plans? The fewer third than primary 2 percentdataworked set in is construction. a 1985 survey Similarly, of small employers in very large which firms the provided likely Because totheir have small full-time a pension employers workers plan. hire (Research paidworkers vacations, on in profitability occupations while only for that 80 firms percent parallel with of the and the In 1983, roughly 44 percent of all nonfarm employees worked for an Introduction before the would encourage pension coverage. Yet, as in any area of government work employees. for fi_us Furthermore, with pension81 plans percent areofdifferent all corporations than employees had fewer who work than for 20 National industries workers. A ComparisonFederation While inofwhich Wa_es onlythey ofand 5 percent Independent work, Benefits the of occupational very Business small (NFIB) firnns distribution are conducted unionized, of from small31 their firms percent own is 22 percent of all workers were in the retail and wholesale trades and only 15 without full-time pensions employeescouldin only smallbe firms conducted(lessthrough than aI00special employees) analysis hadof paid the employer who did not provide a pension plan. The majority of these workers were employed by firms Pension with Coverage fewerAmonthan g Small i00 Employers: employers. This testimony U.S. Senate reg ofulation, the workersconcerns in largeabout firms the are efficacy subject toofa union economiccontract. incentives should be membership. firms SBA's IRS without matchInpension file.) addition,plans. 1985 Bureau For instance, of Labor only Statistics 3.5 percent data for of medium employees and employees. percent Several in services. related Relativelyresearch Thus, few employment corporations issues arein tied large represent tofirms an medium-sized assessment is more concentrated of and why large many in different vacations. fromWhile that practically of large firms. all full-time And large workers employers in are medium more and likelysmall to Facts, Figures and Analysis discusses small employer pension coverage using statistics based on several Committee on Finance data sources that have been made available recently. Subcommittee on Private Retirement Plans In 1983, roughly 44 percent of all nonfarm employees worked for an balanced working for against very the smallpotential firms andforcovered abuse. by Ina pension this area, plan aswork in others, fewer than better 500 manufacturing small firms. employers Sole and proprietorships doless not concentrated provide andpensions. partnerships in the service These are sector. research even more issueslikely includeto an be These differences in unionization and occupation are not the only worker have companies large unionized firmshadis health cited workers. for and purposes Very life insurance small of comparison. firmson engage the Using job,a smaller 7these 5 percent data percentage sets, of simil it arof is One of the most consistent findings of researchers is that small firms pay and Small firms provide important employment opportunities for much of the employer who did not Oversight provide ofa the pension Internal plan.Revenue The majority Service of these workers facts hours characteristics and compared figures to which canI0bediffer percent instrumental by offirmallin size. workers achieving Whileinthat firms verybalance. ofsmall all sizes firms hire without all analysis small. Out of why of 9.3 small million employers sole pay proprietorships, lower wages and 82 how percent pension had plans fewer act than to5 In sum, small employers account for a significant share of business prime-age Small-Employer possible tofull-time draw Pensions a much full-year andclearer Public workers. picture Policy These of small differences business suggest and their thatpension there workers less thanin large small firms. firms hadUsing healththeStatement insurance May 1983of and CPS only pension59 percent supplementhad data, life population. In total, 46 percent of all civilian nonfarm employees worked for firms with fewer than i00 employees. Small employers may be found in all were employed by firms with fewer than I00 employers. Research has shown that insurance. pension plans. increase employees coverage. and productivity. 99 percent Similarly, had Research fewer 83 percent than studies20 of employees. workers have also in vSimilarly, ery considered small out fi[mls whether ofwith 1.3 may typesalsoof beworkers, differences more in teenagers their wages aged and 16 and benefits. 17 and more workers over age 65 assets, sales and employment and operate in a variety of industries. average annual earnings in very small firms were an estimated $11,300 compared Emily S. Andrews, Ph.D. * industries although workers in smaller firms are less likely to work in Good afternoon. I am Emily Andrews, Research Director at the Employee manufacturing and more likely to work in services. the most important determinant of pension coverage is firm size. If small My written testimony provides more statistical information about small pension coverage are between age 25 and 65 compared to 65 percent in very million Nevertheless, companies partnerships, can there simply are substitute 59signficant percent wageemployeed differences payments fewer for in the pension thanstructure 5 payments employees of small inandtheir and 92 work for very small firms than for very large firms. Similarly, very small to The Similar an average data figures presented of $20,200 for suggest pension annually that and retirement the for provision very benefits large of pensions firms. are moreThis by disparate. employers finding Hearing before the Benefit Research Institute (EBRI). EBRI is a nonprfit, nonpartisan public Because small employers hire workers in occupations which parallel the employers provided pensions in the same manner as larger employers, many employers small percent fi[_s hired with without fewer and than without coverage. 20 employees. pension The average plans. tenure I wouldof be covered happy workers to answer in very any How compensation fir_sImportant are more packages. Arelikely Small Firms? to hire part-time employees who work fewer than 500 One of the most consistent findings of researchers is that small firms with large I00 firms.or These fewer differences employees have is influenced been persistent by business over timeconsiderations. and probably Acccording generally holds to theacross BLS all data,occupations. over United90 States percent For Senate instance, of all full-time among profession employees als in in industries in which they work, the occupational distribution of small firms is policy research organization. We attempt to provide information useful to the Committee on Finance different from that of large firms. And large employers are more likely to millions of workers would have a pension plan. While studies have indicated hours a year. questions smallSmall firmsemployers youismight aboutmade have 7.5 a about years substantial, on these the figures, but job smaller, compared or other contribution to 4.3 aspects years to offor business pension those reflect Recentthe findings most efficient suggest sizethat for pension different contributions activities. are The work not simply forces ofa medium pay lessandthan largelarge firms Subcommittee firms. participated Workers on Private inin asmall retirement Retirement businesses orPlans capital are generally accumulation also Consequently, very small firms, publicaverage policy earnings options were which$16,000 would annually reduce the whereas costs they providing reached a have unionized workers. Very small firms engage a smaller percentage of formation of public policy; we do not take positions on public policy issues. and prime-age full-time full-year workers. These differences suggest that there how small employers affect pension coverage, relatively little research has coverage among small employers. And I thank you for the opportunity to appear without pension coverage. These figures suggest that even small employers investment substitute for and wages sales although compared workers to large with employers. higher earnings Corporations and those with in higher fewer largeWorkers Small and small firms in very employers provide small important may firmsalsoarebeemployment also moldedlessto likely particular opportunities to stay production on forthemuch job. needs. of Only the less plan plan $28,000or likely in increase in 1985. very to recei According the large ve benefits employee businesses. to the of benefits pension NFIBSimilarly, data, plan than only provision workers administrative 43 percent inforlarge small of and businesses. employers full-time clerical Oversight of the Internal Revenue Service may also be differences in their wages and benefits. been conducted to explain why many small employers do not provide pension before the Subcommittee today. find tax brackets it profitable tend to to appreciate provide pensions some substitution when their tow workforce ards tax-deferred is older, than 12 percent I00 employees of workers accounted in very large for 21firms percent were of on the corpor job ate for assets less than and one an population. workers averaged According $9,900 toannually the 1983compared CPS pension to $15,800 supplement, for similar 46 percent workers of all in Different would encourage types pension of retirement coverage. plans Yet another are provided public policy by small consideration and large has workers in small firms were plan participants. Moreover, this figure probably One of the most consistent findings of researchers is that small firms pay I am pleased to provide information on pension plan coverage among small Friday, 23 October 1987 less than large firms. Workers in small businesses are generally also less plans. relatively stable and presumably more productive. estimated Does compensation. year the compared Work 28 Force percent to Current 30Differ percent research of byreceipts. Firm of also workers Size? suggests Large in very employers that small wages with firms. are higher 1,000 Employees in or large more of been civilian to discourage nonfat_ employees pension plans worked which for firms are simply with established fewer than I00 to shelter employees. the employers. These differences suggest that economic factors may be important represents large firms.a maximum. Furthermore, The CPS other pension surveysupplement data suggest for 1983 that indicates managers that are paid only likely to receive employee benefits than workers in large businesses. employers in the United States. I have submitted written testimony to the Different types of retirement plans are provided by small and large Many definitions of small business have been used including ones relying In addition, the earnings of workers with pension plans, even when they influences employees firms Furthermore, large because firmsaccounted onare over plan large also two provision. firms for much thirds 61are more percent ofmore likely thosedifficult ofworkers toassets have to worked and long manage antenure for estimated efficiently. firms on the with 55job. percent fewer Pensions Before than of more income inoflarge owner-managers fi_s as well. or otherNevertheless, highly paid according executives toand the partners. May 1983 The CPS 26 percent of full time workers in 1983 were covered by a pension plan. The employers. These differences suggest that economic factors may be important Subcon_ittee, and will summarize the major points of that testimony today. influences on plan provision. on assets, sales and employment. In this testimony, employers are categorized work for very small employers, are higher than the earnings of those without receipts. are the 1986 felt Tax toMedium-sized Reform serve aAct, management firms many with employers purpose, I00 to selected in1,000 part,aemployees 10-year by inducing vesting held productive less standard than IRS-SBA data match suggests that only 21 percent of firms with fewer than I00 data pension 25 workers. Small suggest supplement, employers Thus, that nearly hire some individuals workers one-third concern in of about in manyall certain occupations workers professional technical (31which, percent) corporations and in part, worked professional parallel may in very be In general, employers will provide pensions if the benefits from by employment size. Very small employers are those with fewer than 25 plans. for theirAverage pension earnings plans. The for proportion covered workers of workers in who smallwould firmshavearemet $1such 7,100 a the workers one-fifth industries to (18 staypercent) on in the which of job all they longer. corpo work. rate WhileIn assets researchers very andsmall an do estimated firms not completely (fewer 16 percent thanagree of 25 small In firmsgeneral, with fewer employers than 25will employees. provide Atpensions the otherif endtheof benefits the spectrum, from warrented occupations as may one-third have of higher all employees earnings with in small pension firms. coverage These in firms occupations with 25 workers took a pension deduction. The NFIB members probably represent small establishing the plan are greater than the costs of the plan. Yet the In 1983, roughly 44 percent of all nonfarm employees worked for an administrative costs of plans for small employers are likely to be greater employees and small employers are those with fewer than I00 workers. Very receipts. compared to only $I0,I00 for those without coverage. Higher income workers about standardhow inpensions large firms enhanceis productivity, higher than the thereproportion is a concensus in very thsmall at pensions firms. over establishing employees), one-third9 the percent (36plan percent) of are allgreater ofworkers all than workers are the managers worked costs and for of professionals the very plan. large firms Yet and the 16 -- or fewer employees work in the professional-service industry. This industrial businesses include mathematicians which are relatively and computer stablescientists, and, therefore, health more diagnosing likely occupations to provide than those for large employers. Presumably, the economic benefits of having a employer who did not provide a pension plan. The majority of these workers plan would have to be greater for small employers than for large large employers are businesses with a work force of 1,000 or more. benefits. may servebeanmore economic likely purpose. to have pension coverage for two reasons. First, they may percent thoseSmall with areemployers 1,000 administrative ormaymore be and found workers. clerical in allFewer workers. industries. workersOne-fifth worked In veryoffor small allmedium-sized workers firms, in I0 Fully (including 36 percent physicians), of employees and lawyers in very and large judges.firms were on the job for I0 years category administrative only accounts costs offor plans 23 percent for smallof employers workers inare verylikely small to firms be without greater The views expressed in this statement are solely those of the author and corporations. And tabulations suggest that employees who work for firms with were employed by firms with fewer than I00 employees. My testimony discusses should not be attributed to the Employee Benefit Research Institute, its pension plans are different than employees who work for firms without pension This testimony discusses small employer pension coverage using statistics be more willing to accept deferred compensation because of their higher percent firms. or those more In firms compared of general, Lessemployees arethan to service employers only one-fifth worked 16 workers; percent in will (19 manufacturing another provide of percent) workers 6 pensions percent ofand in the very II are percent labor small if construction the firms. force inbenefits construction. worked workers fcfor om coverage. A similar skew in the industrial distribution for covered and than those for large employers. Presumably, the economic benefits of having a Different Studies showtypes that ofthe retirement finding of plans lower pay are in provided small firms by small is not and simplylarge an officers, trustees, sponsors, or other staff. plans. small employer pension coverage using statistics based on several data sources based on several data sources that have been made available recently. The marginal and employers 18 percent tax with rates. I00 are other to 1,000 But, production workers. employers and may craftalso workers. be more willing to pay more establishing In addition, Thus, while 32 thepercent workers plan worked are are greater found in retail inthan a and wide thewholesale variety costs of of trade the occupations and plan. 38 percent Yet in both the in plan artifactwould of have workerto be differences greater that for small are hidden employers in than aggregate for large job noncovered employers. workers Among large is not employers, observed 80inpercent other offered firm-size a defined categoriesbenefit including plan _Emily S. Andrews is Research Director of the Employee Benefit Research The data presented suggest that the provision of pensions by employers that have been made available recently. Institute (EBRI). EBRI is a non-profit, non-partisan public policy research with i00 or fewer employees is influenced by business considerations. first data set is the Current Population Survey (CPS) pension supplement productive large and workers small pensions firms, in significant the hopes of keeping occupational them withdifferences the firm longer. exist. services. administrative firmsTheemploying occupational Slightly costs 25 tolarger of 99 distribution workers. plans firms for have ofsmall small a similar employers firmsemployment isaredifferent likely distribution to frombe that greater but ofa corporations. Despite considerable And tabulations fanfaresuggest to the that contrary, employees the who employment work for firms sharewith of classifications. institute. Research has show that even when wage rates are adjusted for in 1985 and 41 percent offered a defined contribution plan. Many large and Consequently, public policy options which would reduce the costs providing a plan or increase the benefits of pension plan provision for small employers sponsored by the Employee Benefit Research Institute (EBRI) and the Department One frequently cited reason for insituting a pension plan is that of firm greater than those proportion for large of employers. manufacturing Several employment studiesand show a smaller that costs proportion per plan of Furthermore, small firms has veryprobably small remained firms engage relatively a smaller stable percentage in recent of years. prime-age The pension factors largeAs firms. in plans such any are In asarea particular, education, different of government than large age, employees hours firms regulation, have worked, who awork concerns higher union for percentage membership firms about without th efficacy ofand managers pension other of medium-sized employers offered their employees both types of plan. In would encourage pension coverage. Yet, as in any area of government Small firms provide important employment opportunities for much of the regulation, concerns about the efficacy of economic incentives should be of Health and Human Services and conducted by the Bureau of the Census. The workers in the service sector. profitability. participant are Profitability smaller for larger might pension influenceplans. pensionThe coverage 1985 NFIBfordata a number indicateof plans. and percent full-time professional of full-year privateworkers nonfarm workers, (16workers percent) the type in and firms of a workers higher with fewer percentage that than were I00 oftheclerical employees originally and in economic related contrast, factors, incentives defined oncontribution average, should beworkers balanced plans inaresmall against favored firmsthebytend potential small to beemployers paid for less. abuse. with 65 In balanced against the potential for abuse. In this area as others, better population. In total, 46 percent of all civilian nonfarm employees worked for facts and figures can be instrumental ill achieving that balance. second data set is the Small Business Administration's (SBA) match of 1979 reasons. A profitable firm would be more likely to be in a position to make that focusWorkers administrative of the in larger 1974 costs Employee firms range areRetirement also f_om more an average Income likely of toSecurity over work $400 in Act manufacturing per(ERISA). participantand In administrative 1983 essentially workers maintained (20 percent). the earlier Although 1979 46-percent the proportion rate. of Whilenon-owner shifts percent this Workers area ofas in others, thesmall NFIB better businesses survey facts respondents and are figures generally can providing also be instrumental lessretirement likely intoachieving benefits receive firms with fewer than I00 workers. Small employers may be found in all that balance. the for type employers of long-term with onlycommittment 3 to 4 employees that a pensio to an average plan implies. of $76 per Furthermore, participant a managers addition, less likelyislarge-firm tohigher work in inworkers services. larger are firms, Thegenerally share additional of onmanufacturing the data job wouldfor employment belonger neededdrops than to employee away from benefits larger EMPLOYEE EMPLOYEE than firms workers mayBENEFIT BENE be in Funderway, ITlarge R RESEARCH ESEA businesses. particularly RCH I INSTITUTE NSTI Benefit T in UTE manufacturing, provision fora indicating that they provided such a plan. And half of these are profit 2121 K Street, NW / Suite 600 / Washington, DC 20037-2121 2121 K Street, NW / Suite 600 / Washington, DC 20037-2121 T Telephone elephone 202 202.659 -659-0670 -0670 FAX FAX 202 202-775-6312 -775-6312