Survey Shows Strong Employer Interest in Helping Workers Save for Retirement
Small businesses face many barriers to offering workplace plans
Findings from a national survey of small and midsize businesses suggest that many employers need to reach a point of stability—in terms of finances and number of workers—before offering retirement benefits.
Analysis of the survey data finds that as businesses become older and larger, they are more likely to offer a retirement plan. The likelihood they will do so rises fastest in a firm’s first few years or as it approaches 50 employees.
Analyses suggest that without policies encouraging employers to start their own plan or government intervening, some businesses—no matter the size or number of workers—would never offer a plan. Policymakers in many states are considering ways to boost retirement savings among private sector workers who do not have access to a plan on the job.
The Pew Charitable Trusts recently released an issue brief, “Employer Barriers to and Motivations for Offering Retirement Benefits,” analyzing data from a survey of more than 1,600 business owners and managers nationwide. Conducted between April 26 and June 29, 2016, the survey focused on barriers that small to midsize businesses (five to 250 workers) say they face in offering retirement plans and assessed reactions to various state policy initiatives intended to boost saving opportunities.
Offering a retirement plan is a priority, but not the top priority for many of these businesses. According to the survey, they are more likely to offer workers paid time off (86 percent) and health plans (62 percent) than provide a retirement plan (53 percent). The survey found that the small to midsize firms most likely to launch a plan are those with a greater percentage of full-time workers, those that outsource their payroll, and those that have seen earnings increase over the past two years.
Employers see several common barriers that keep them from offering plans, with 37 percent citing financial cost and 22 percent expressing concern about the organizational resources needed to administer a plan. Benefits can be expensive and require some level of internal administration, two factors that can pose challenges for smaller and younger businesses in particular. One-sixth said they do not offer a plan because their employees are not interested in one. When asked which circumstances would motivate them to start a plan, employers most frequently cited increased profits (67 percent) and tax credits for starting a plan (60 percent).
Of the businesses that do offer a plan, the survey also focused on their motivations for doing so and the characteristics of the retirement plans they offer. Among the reasons that employers cited for providing retirement benefits are a desire to help employees save for retirement and the need to attract and retain employees. Nearly all employers that provide this benefit do so through a defined contribution plan, such as a 401(k) or 403(b).
The emphasis on defined contribution accounts follows a long-term trend away from traditional pensions to plans in which individuals take on greater risk and responsibility for choosing investments and making contributions. Under defined benefit pension plans, employers choose investments and worker benefits are typically determined by years worked and salaries, not the track record of the investments.
Still, one-third of the companies in the survey said they offer more than one type of plan, for example a defined contribution plan, as well as a traditional pension, or a hybrid plan that combines elements of both. Employers help build retirement savings in these plans through contributions. Research shows that when an employer contributes or matches worker contributions, employees are more likely to participate.
But the survey also shows a need to educate business leaders about possible paths to helping their employees save. It found that employers typically have limited knowledge about the range of plans available. While most are at least somewhat familiar with 401(k) plans, far fewer know details about Simplified Employer Pension (SEP) plans, SIMPLE IRAs, or myRAs, all of which are designed for small firms or individuals.
Pro-savings features—tools that can influence behavior and that research shows help boost employee participation and savings—are not commonly used. Only 1 in 3 employers said they use automatic enrollment, in which workers are enrolled in a plan unless they opt out, and 1 in 6 uses automatic escalation, in which employee contributions increase annually until they reach a target limit.
When asked for reasons for not using pro-savings features, employers most often said that they were satisfied with their current setup or that their employees would not like these features.
The survey sheds light on the different stresses on small to midsize businesses as they consider retirement plans for their workers. They see the plans as valuable in attracting talent and helping employees save for retirement, but they also see significant barriers to providing these plans—concerns that state policymakers can try to address as they look to programs to boost savings for private sector workers.
John Scott directs The Pew Charitable Trusts’ retirement savings project, and Sarah Spell is a senior associate with the project.