Whereas concern about stability is comprehensible, fear about prices is predicated on critical misperceptions.
At any given time, solely about half of personal sector staff in the US are lined by an employer-sponsored retirement plan, and few staff save with out one. Quite a few research have proven that providing a retirement plan is carefully associated to agency measurement; companies with fewer than 100 workers are a lot much less prone to supply a plan than bigger companies (see Determine 1).
Consequently, observers are likely to dismiss small companies as a supply for future development in protection. In truth, although, many small companies do supply retirement plans. The query is what’s stopping different small companies from taking the leap?
Whereas latest surveys have touched on small companies and retirement plans, the final complete survey was greater than twenty years in the past. Traditionally, small companies have persistently cited the identical three main boundaries: unsure revenues that make it onerous to decide to a plan; worker preferences for wages and different advantages; and the prices related to establishing and administering a plan.
To find out whether or not perceived boundaries have changed over time, we labored with EBRI and Greenwald Analysis to duplicate their 1998 survey. Interviews had been carried out between February and April 2023 with 703 companies with 100 or fewer workers.
Determine 2 compares the responses of small companies in 1998 and 2023. The highest two boundaries that stop small companies from providing a retirement plan – income considerations/enterprise measurement and prices or administrative burden – have remained vital. At this time, nevertheless, employers are far much less prone to cite “worker prefers wages” as a significant cause for not providing a plan.
The primary concern – income stability/enterprise measurement – appears compelling. Certainly, many small companies are new, and companies might have to turn into established earlier than establishing a office retirement plan is seen as a viable possibility.
The second barrier, price or administrative burden, nevertheless, appears to be pushed by misperceptions. A fast Google search yielded a number of 401(ok) choices the place annual employer prices would solely be about $2,500 for a agency with 10 workers and $5,000 for a agency with 50 workers. However, over half of small companies imagine offering a retirement plan would price greater than $10,000 per yr; and almost 30 p.c suppose it might price greater than $20,000 per yr.
Not solely do small companies overestimate the price of providing a plan, the overwhelming majority – significantly these with fewer than 50 staff – should not conscious that they will declare a tax credit score of as much as $5,000, for 3 years, to assist offset the prices of beginning a plan. Curiously, about 80 p.c of employers say that such a credit score would make providing a plan extra enticing.
These outcomes recommend that many companies overestimate the monetary and time prices required to supply a plan and that higher consciousness of lower-cost plan choices for employers and tax credit may assist transfer the needle on the protection hole.