1999 Y • Comparative Profiles: Companies W Chairmen Ray and Members of the W The SERS questions both employers with plans and without plans and seeks to provide greater • R As the SERS finds, 39 percent of small employers without plans say they are very or somewhat evenue is too uncertain to commit to a plan, the business is too new and it costs too much to set outh and Money Survey orking Group: ith Retirement Plans and Those Without Plans EBRI understanding of decisions made by both groups of employers. I will summarize some of the Most up and administer likely to start a plan in the next two years. The SERS provides data on what points these American students feel confident in their money management skills, but many feel they need —While the current version of H.R. 10 does not contain tax credits for small • Small employers that sponsor retirement plans tend to be distinctly different from small EMPLOYEE The Employee Benefit Research Institute (EBRI) is pleased that the ERISA Advisory Council has to know more about financial issues, according to results of a recent survey published in the primary findings. employer plans, an earlier Senate version of similar legislation that passed the Senate Finance employers will primarily focus upon in making that decision. And, SERS provides guidance to Au- employers without plans, in terms of revenue levels and the composition of their work force. BENEFIT convened a working group to study increasing pension coverage. EBRI has conducted work on this gust edition of EBRI Notes by the nonpartisan Employee Benefit Research Institute (EBRI). Committee on Sept. 7, 2000, allowed for small businesses with 100 employees or less to be policymakers as to what factors can be affected by public pension policy. T-128 RESEARCH issue since 1979, and stands ready to assist the working group in any way possible. Obstacles to Plan Sponsorship Significantly eligible for an annual tax credit of 50 percent on up to $1,000 of administrative costs for the , the vast majority of students have financial courses offered at school, but barely a • Small employers that offer retirement plans tend to have higher revenues than small employ- INSTITUTE ® third have chosen to take the course. Overwhelmingly first three years of a new plan. These credits, along with other additional credits for busi- # # # , students say they depend on their parents • ers that do not have retirement plans. There are a number of reasons that come up in the Small Employer Retirement Survey on why As the chart that follows indicates, the last decade has seen very little change in the number of for financial information. nesses that previously did not sponsor retirement plans, would be a motivator for those not more small employers do not offer retirement plans—it is not simply a matter of administrative family units with pension coverage of some kind, while the type of coverage – defined benefit, offering a plan to consider sponsoring one. —Aug. 16, 1999 EBRI press release Approximate Gross Revenue in Previous cost and burden. The survey asked small employers to identify the most important reason for Year Plan Sponsor No Plan defined contribution, or both — has changed a great deal. Bibliography of EBRI Research on Retirement Issues • Required company contributions are too expensive—H.R. 10 would provide for increases in Less than $2 million not sponsoring a plan, and to state whether a given reason was a 37% “major” factor in evaluation. 70% deferral limits in defined contribution plans, making a salary reduction plan more attractive to $2 Million or More Twenty-one percent said that the most important reason was that employees prefer wages and/ 41 16 EBRI Books/Special Reports: a small employer. Not Reported or other benefits. In fact, our value of benefits surveys have found that 76 percent of workers 22 7 70 Andrews, Emily S. The Changing Profile of Pensions in America. Washington, DC: Employee 65 Public Opinion Surveys: • T who can have only one employee benefit state a desire for health insurance. Eighteen percent oo many government regulations—H.R. 10 would streamline and simplify certain reporting 1992 Benefit Research Institute, 1985. Statement for the • and testing regulations to encourage more employers to offer pension coverage. Small employers offering retirement plans tend to employ different types of workers than of small employers say that the most important reason for not having a plan is the makeup of 1995 60 The 2000 Retirement Confidence Survey (RCS) 57 56 57 57 • T those that do not sponsor a plan their work force, a large portion of workers are seasonal, part time, or high turnover ax benefits for the owner are too small —their employees tend to be older —H.R. 10 would provides for increased contribution , have higher earnings, . Twenty- _______. Pension Policy and Small Employers: At What Price Coverage? Washington, DC: Employee 1998 The exercise of trying to figure out how much you need to save for retirement can put you ahead in 53 ERISA Advisory Council limits on an employer have more formal education, and tend to remain with the company longer four percent say that revenue is too uncertain to commit to a plan or the business is too new ’s deduction for contributions to certain types of defined contribution . . 51 Benefit Research Institute, 1989. the savings game, according to results of the 2000 Retirement Confidence Survey (RCS) released 50 plans. In addition, H.R. 10 would allow workers over age 50 to contribute up to $5,000 in Cost and administration-related issues do matter, with 20 percent saying that it costs too much Working Group Studying Increasing Pension Coverage today. Workers who have attempted such a calculation appear to be doing a better job of preparing Age of Most Full-T “ to set up and administer a plan; that required company contributions are too expensive; or that catch-up” contributions in 401(k) plans. ime Employees Plan Sponsor No Plan Employee Benefit Research Institute. for retirement than those who have not. What Is the Future for Defined Benefit Pension Plans? Wash- 40 40 Under age 30 there are too many government regulations. For most, therefore, the financial reality of run- 15% 27% 40 38 ington, DC: Employee Benefit Research Institute, 1989. —May 16, 2000 EBRI press release 30–ning a small business is the primary impediment to having a plan. 39 Years 53 38 32 Potential Motivators for Retirement Plan Sponsorship Ages 40 and older 27 33 The 2000 Minority RCS, which oversamples respondents in three minority groups (African- Most Schieber, Sylvester J., and Patricia M. George. Retirement Income Opportunities in an Aging 28 30 27 Americans, Hispanic-Americans, and 26 Asian-Americans) as part of the Retirement Confidence • Reasons for Not Offering a Retirement Plan SERS found that the potential exists for increased plan sponsorship. Those likely to start a Important Major America: Coverage and Benefit Entitlement. Washington, DC: Employee Benefit Research Insti- 23 23 Annual Salary of Most Full-Time Employees 22 Plan Sponsor No Plan Survey, shows many similarities as well as differences about retirement confidence, prepara- 20 plan are somewhat more likely to report that the most important reason they don’t currently tute, 1981. 20 Less than $20,000 tions and planning for retirement among individuals in these minority groups. Overall, the 9% 34% Employees prefer wages and/or other benefits. have a plan is revenue uncertainty and less likely to say it is because a large portion of their 21% 38% of $20,000 Minority RCS found that Hispanic-Americans tend to be less confident that they will have –$40,000 71 56 A large portion of workers are seasonal, workers are seasonal, part time, or high turnover. This therefore suggests that continued Over $40,000 17 7 enough money to live comfortably throughout their retirement years than are other groups. 10 improvement in their business conditions will allow them to consider starting a plan in the part time, or high turnover. 18 40 Dallas L. Salisbury —May 16, 2000 EBRI press release Revenue is too uncertain to commit to a plan. future. 13 45 President and CEO, The business is too new Educational Level of Most Full-T . ime Employees Plan Sponsor 11 No Plan 22 The 1999 Women’s Retirement Confidence Survey (WRCS), also an oversample of the Retirement 0 Employee Benefit Research Institute Any Plan DC Only* DB + DC K Only K + DB DB Only* High school or less It costs too much to set up and administer Likelihood of Starting a Plan in the Next T Confidence Survey. A majority of American women are saving for their retirement and are . wo Years 38% 9 55% 33 Washington, DC Some college Required company contributions are too expensive. Very likely confident of their retirement prospects, but more is still needed to ensure they will be able to 16% 34 8 4 32 3 Against a second metric, employer size, coverage has also changed. Participation in plans, for College degree or more T Somewhat likely oo many government regulations. 23 27 3 2 11 4 afford life after work, according to a new survey by the nonpartisan Employee Benefit Research example, has increased among employers with under 10 employees from 16.2 percent in 1994 to April 9, 2001 V Not too likely esting requirements cause too much money to 29 Institute (EBRI). 21.6 percent in 1999; from 27.1 percent for those employers with 10 to 24 employees in 1994 to Not at all likely go to short-term employees. 31 3 35 —Feb. 2, 1999 EBRI press release Length of Time Most Full-Time Employees Stay With Company 34.3 percent in 1999; and from 41.8 percent among workers for employers with between 25 and 99 Don’t know where to go for information on Plan Sponsor No Plan employees in 1994 to 46.1 percent in 1999. While far short of the 86 percent participating in The 2000 Small Employer Retirement Survey (SERS) • starting a plan. What would lead to increased plan sponsorship? Nonsponsors were read a list of items and 2 5 Less than 3 years 13% 34% employers with more than 1000 employees, it represents progress. Among private employers with Tax benefits for the owner are too small. asked if any would make them seriously consider sponsoring a retirement plan. The highest 3 23 Are small businesses saying “no” to a retirement plan for their employees before knowing all the Between 3 and 9 years 56 38 fewer than 100 workers, 46 percent are participating in an employment-based retirement plan. Other reasons. percentage, 69 percent, said an increase in business profits. Next, 65 percent said tax credits 9 6 facts? According to the results of the 2000 Small Employer Retirement Survey (SERS) released 10 years or more 30 24 for starting a plan, and 52 percent said reduced administrative requirements. today, nonsponsors may not be aware of all the options available to them, or of the potential busi- Because most of the uncovered and non-participating work for small employers, EBRI has studied ness advantages of offering a plan. Currently Employee-related reasons are most often cited as the most important factor for not offering a plan, , less than half (46 percent) of full-time employees at the issue of retirement plan sponsorship—and nonsponsorship—among small (100 or fewer) em- small private establishments (100 or fewer workers) are participating and business-related reasons, such as profitability Factors That Would Make Non-Sponsors Seriously Consider Sponsoring a Plan , are also a main decision-driver. This may Implications for the Small Employer Pension Coverage ployees extensively. Our 1989 book, “Pension Policy and Small Employers: At What Price Cover- An increase in business profits. explain why plan sponsorship rates remain low despite repeated legislative efforts to boost them. 69% in an employment-based retirement plan. age?” was a benchmark study for our ongoing efforts. It’s quantitative work underlined the impor- • Major drivers of low retirement plan sponsorship among small employers relate to who they Tax credits for starting a plan. 65 —April 4, 2000 EBRI press release tance of such design features as vesting to small employer decision making (the faster the vesting employ and the uncertainty of revenue flows. While issues of administrative cost and burden A plan with reduced administrative requirements. H.R. 10 would address several of these issues in the following ways: 52 schedule the less interested a small employer is in sponsoring a plan) and the prospects of such matter, they are only part of the puzzle. Therefore, the solution is not simply “build it and they The 2000 V A •vailability of easy-to-understand information. Employees prefer wages/and or other benefits alue of Benefits Survey —H.R. 10 would encourage education on the 50 legal changes as tax credits for expansion of coverage through the creation of new plans (a 14% tax will come,” by creating new types of retirement plans. Rather, it is build it and make it attrac- EBRI conducted Demand from employees. value of having a retirement benefit by specifying that retirement advice provided to employees “value of employee benefits” surveys in 1991 and 1996 to determine the relative 49 credit was projected to add between 3 and 6 million worker to the covered rolls). tive enough for service providers to decide to work at selling it so that small employers will Allowing key executives to save more in a retirement plan. on an individual basis would be a nontaxable fringe benefit to the extent such services are 5 importance of different benefits to workers and to assess the role played by benefits in job choice make the sponsorship decision once the business reaches a certain level of profitability and Lengthening of vesting requirements. made available on substantially equivalent terms. 27 and job change. Collaborating with WorldatWork, the survey was repeated in 1999. As earlier Since 1998, we have conducted an annual qualitative Small Employer Retirement Survey (SERS) stability, and once retirement planning and saving is more of a priority for the small employer’s Other. 10 The views expressed in this statement are solely those of the author and should not be attributed to the surveys have shown, employee benefits today remain “very important” in job selection, and work- • A large portion of workers are seasonal, part time, or high turnover—H.R. 10 would permit to explore small employer retirement plan sponsorship decisions. The survey is sponsored by workers Employee Benefit Research Institute, or the EBRI Education and Research Fund, its officers, trustees, ers continue to rank their health benefits as the most important of several benefits. rollovers from the various types of defined contribution arrangements (i.e., 401(k), 403(b), and EBRI, the American Savings Education Council, and Matthew Greenwald & Associates. Results of sponsors, or other staff, or to the EBRI-ERF —June 2000 EBRI Notes American Savings Education Council. The Employee Benefit governmental 457) to each other without restriction, which would make retirement plans more the 2001 SERS will be released this June. Research Institute is a nonprofit, nonpartisan, public policy research organization which does not lobby or attractive for these type of workers. take positions on legislative proposals. 1 3 2 4 5 6