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Can Small Employers Be Encouraged to Offer Retirement Plans?
WASHINGTON-- Policymakers have spent years trying to expand pension plan sponsorship by small employers, businesses with 100 or fewer employees. A new survey released today provides insights into how this might be accomplished.
The 2001 Small Employer Retirement Survey (SERS), sponsored by the nonpartisan Employee Benefit Research Institute (EBRI), the American Savings Education Council (ASEC), and Mathew Greenwald & Associates, provides information that could help policymakers respond to the needs of small business owners who need to develop their pensions plans. Conducted annually since 1998, the SERS helps explain the factors behind the so-called "pension gap" among small businesses.
The survey looks at three key areas: 1) why many small employers do not offer plans; 2) how familiar nonsponsors (companies that don't offer a plan) are with the options and incentives available to them; and 3) what might motivate small businesses to offer plans.
Small employers are generally viewed as a key factor to any significant expansion of retirement-plan coverage in the United States, since the vast majority of large firms offer retirement plans to their workers but most small firms do not. According to the most recent data available from the U.S.
Department of Labor, 79 percent of full-time employees in medium- and large- sized firms are covered by an employment-based retirement plan, compared with 46 percent in small firms.
Among the key findings from the fourth annual SERS:
Reasons cited by small employers for not offering a retirement plan -- Employees prefer wages and/or other benefits (19 percent); revenue is too uncertain to commit to sponsoring a retirement plan (18 percent); a large portion of workers are seasonal, part time, or high turnover (15 percent); it costs too much to set up and administer (12 percent); required company contributions are too expensive (10 percent); the business is too new (6 percent); and too many government regulations (4 percent).
* Nonsponsors' lack of familiarity with different retirement plans -- Nonsponsors may be unaware of all the plan options available to them as small businesses. Many report that they have "never heard" of the following plan types: simplified employee pensions (SEPS) (52 percent); traditional pension or defined benefit plans (36 percent); savings incentive match plan for employees (SIMPLE) plans, which were created by Congress specifically for small employers (34 percent); deferred profit-sharing plans (23 percent); and 401(k) plans (2 percent).
* Motivators cited to sponsor a retirement plan -- An increase in the business' profits (44 percent of nonsponsors); a plan with low administrative costs that required no employer contributions (35 percent); business tax credits for starting a plan (23 percent); a plan that could be tailored to the unique needs of their business (23 percent); a plan with reduced administrative requirements (18 percent); availability of easy-to-understand information (19 percent); allowing key executives to accumulate more in retirement plan (16 percent); demand from employees (15 percent); repeal of top-heavy rule (10 percent); a plan that could be set up and administered completely over the Internet (7 percent); and lengthening of vesting requirements (6 percent).
"The 2001 SERS also demonstrates that small companies with retirement plans tend to employ older, more stable or better educated workers, than small companies that do not provide retirement plans," said Mathew Greenwald, president of Mathew Greenwald & Associates. "And even when comparing companies of similar size, sponsors tend to have higher gross annual revenues than nonsponsors."
Concerning employers that do offer retirement plans:
* Retirement plan sponsorship -- Small employers most often offer a defined contribution plan (95 percent offer only defined contribution plans; 5 percent offer both defined contribution and defined benefit plans). Fifty-eight percent of small employers that offer a defined contribution plan say they provide a 401(k) plan. They are less likely to offer a SIMPLE plan (22 percent), a deferred profit-sharing plan (22 percent), or simplified employee pension (SEP) (13 percent).
* Reasons cited for offering a retirement plan -- Most important is the competitive advantage that sponsoring a retirement plan gives the business in employee recruitment and retention (25 percent). Next are the positive effect on employee attitude and performance (19 percent); employer obligation to provide a retirement plan for their employees (16 percent); and tax advantages for their employees (9 percent), key executives (6 percent), or themselves (4 percent).