EBRI Press Release

Small Employers: Retirement Planning's Overlooked Giant?

Jun 2, 1998

WASHINGTON, DC -- Twenty-five million Americans working for small employers and not covered by a retirement plan could face a bleak retirement unless their employers receive help in making retirement plans accessible and easy to institute and these employees themselves make retirement savings more of a priority. According to the Small Employer Retirement Survey (SERS), small businesses, which employ some 36 percent of the country's work force, feel little pressure from their workers to institute retirement plans. The first in-depth retirement planning survey of small employers reveals that these companies also feel that uncertain revenue streams for their business and administrative costs and burdens are major deterrents to establishing a retirement plan.

"The SERS results demonstrate that if we are going to see real increases in retirement plan sponsorship among small employers, then we must not only address their concerns about the dollars involved, but we must also educate their workers about the importance of retirement planning and savings. Otherwise, a lot of hard-working Americans could face a bleak retirement," stated Employee Benefit Research Institute (EBRI) President Dallas L. Salisbury.

The SERS is co-sponsored by EBRI, the American Savings Education Council (ASEC), and Mathew Greenwald & Associates (MGA). The release comes two days before the 1998 White House/Congressional National Summit on Retirement Savings (Summit), which will focus major attention on small employer retirement issues. ASEC is co-organizing the Summit, and representatives from EBRI, ASEC, and MGA are delegates.

The SERS finds that small employers perceive little interest or demand from employees to offer a plan. When asked their reasons for not offering a plan, 50 percent cite employees' preference for wages and /or other benefits as a major reason, and 22 percent say this is most important. Even among companies with a plan, just 25 percent say employee demand is a major reason they instituted one.

For companies without a plan, the lack of demand by workers is coupled with concerns about company finances and the cost and administrative burden of offering a plan. Fifty-one percent cite uncertain revenue as a major reason they do not have a plan, and 16 percent say it is the most important reason. Thirty-five percent of small employers cite the high cost of setting up and administering plans as a major reason that they do not offer one. Similarly, 35 percent say there are too many government regulations, and 27 percent say retirement plans require too much paperwork.

About 3 in 10 workers at small employers-companies with 100 or fewer employees -- are covered by a retirement plan at work. That leaves 25 million Americans working for small employers in which there is no opportunity to participate in a work place retirement plan. In addition, only one-fifth of people working for small employers actually participate in a plan, compared with larger firms (those with 100 or more employees) that have a coverage rate of 83 percent and a participation rate of 64 percent.(1) Companies without plans perceive no particular adverse consequences to their businesses. Many feel that not having a plan has no impact on hiring (56 percent), employee performance (60 percent), or the ability of their employees to prepare financially for retirement (47 percent).

A comparison with companies that offer retirement plans shows strikingly different perspectives. The SERS finds that companies with plans feel offering a retirement plan results in significant benefits both for employees and the companies themselves. More than three out of four survey respondents cite employees' need for retirement income as a major reason they offer a plan (78 percent). Two-thirds cite a positive effect on employee attitude and performance as a major reason. A majority cite a competitive advantage in employee recruitment and retention as a major reason.

"These figures from companies with plans clearly demonstrate that those that "take the plunge" perceive substantial rewards. The experiences of those who offer plans can provide lessons for others," stated Mathew Greenwald, president of MGA.

Although cost issues are a major reason companies decline to establish a plan, in many cases that concern may be based on misinformation. In a four-item true-false quiz about retirement plans, 44 percent of small employers without plans answer no more than two questions correctly. One-third do not know a plan can be set up for less than $2,000; 45 percent think they are legally required to match all employee 401(k) contributions; and 40 percent do not know they can share plan administrative costs with employees.

Offering their employees a retirement plan is clearly a benefit many of the companies surveyed have considered. One-half of the non-plan employers say they have considered offering a plan, but only 17 percent feel it is very likely that they will do so in the next two years (an additional 25 percent say it is somewhat likely). What might make them change their mind? Survey respondents are relatively evenly divided on what factors might impact them. At the high end of responses is an increase in business profits (66 percent) or a business tax credit (64 percent). One-half respond positively to a plan with reduced administrative costs, and 49 percent say they would seriously consider offering a retirement plan if employee demand for such benefits were to increase. Forty-nine percent also say that allowing key executives to save more in the plan would lead to serious consideration.

A plan also increases employers' confidence in their employees' future. Fifty-eight percent of employers with plans feel their employees are very or somewhat well prepared for retirement. Only one-quarter of companies without plans feel the same.

This confidence may be misplaced, however. According to the SERS, less than one-half (45 percent) of small employers with plans provide retirement savings education information to their employees on an ongoing basis.

"This survey shows that many small employers, even if they offer a plan, have not yet made the full connection that retirement savings education yields action among employees. This year's Retirement Confidence Survey shows that when workers get information, they begin to save, and if they are already involved in a plan, make more informed choices on where and how to save for retirement," stated ASEC President Don Blandin.

Among small employers who do offer a plan, defined contribution plans (those in which employers and/or employees put in money, and the amount received is based on the contribution plus investment earnings) are the clear favorite, offered by 84 percent. Only 7 percent offer a defined benefit plan (in which there is a promised specified lifetime benefit, and in which employer contributions must be sufficient to fund the promised benefit). Eight percent of companies offer both.

By a wide margin, 401(k) plans are the most popular defined contribution plan. Sixty-one percent of companies with a defined contribution plan offer this type. Profit sharing is second (31 percent), with SIMPLE and SEP plans a distant third and fourth (12 percent and 9 percent, respectively).

"We need to simplify the process for small employers. We also need to build demand among employees by persuading them to consider retirement planning a priority. If we can do that and make sure the educational tools are available as needed, we can go a long way towards ensuring that a vital segment of our population not only has access to retirement saving, but seizes the opportunity to prepare for their future," ASEC President Don Blandin stated. "The Saver Summit is a great place to start."


The Small Employer Retirement Survey 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., 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.

1) The figures are based on EBRI tabulations of the 1993 Current Population Survey employee benefits supplement.

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