Only about 14% of small employers sponsor some type of plan to help their employees save for retirement, according to a Government Accountability Office (GAO) report on retirement security and the challenges and prospects for employees of small businesses. This dire statistic was repeated in GAO testimony before the U.S. Senate Committee on Health, Education, Labor, and Pensions, which has jurisdiction over the formulation of pension laws.
Retirement readiness is increasingly a topic of concern and discussion. Retirees without adequate resources can have an enormous impact on federal, state and local budgets. An important aspect of this discussion is the extent to which small employers — those with fewer than 100 employees — offer retirement plans to their employees. This is important because small businesses in the U.S. employ approximately 35% of all workers, according to the U.S. Census Bureau. The GAO report and the agency’s Senate testimony seem to paint a grim picture for retirement security — at least for employees of small businesses. Why then are small employers not stepping up to the retirement plan plate?
Well, maybe they are. Let’s take a closer look at what the GAO report purports to have found.
The 14% retirement plan sponsorship statistic would appear to support the position that few small employers sponsor a plan of some type and, by inference, that the current retirement system is failing in this regard.
Any credible study of small employer plan sponsorship would, logically, consider all types of retirement plans actually sponsored by small employers. Because the GAO uses the phase a retirement plan “of some type,” a typical reader would reasonably conclude the GAO did take into account various types of plans of small employers in their research.
This is not the case.
The GAO did not take simplified employee pension (SEP) plan sponsorship into account when making its grave pronouncement that only a minor percentage of small employers sponsor some type of plan. Granted, determining the number of employers sponsoring SEP plans is difficult under the current IRS reporting regime. That said, burying this omission in a footnote and highlighting the ostensible 14% sponsorship level seems to be obfuscatory (see footnote 27 of the GAO report, "RETIREMENT SECURITY: Challenges and Prospects for Employees of Small Businesses").
Frankly, this is absurd. It would be like the Department of Transportation calculating how many people owned cars by counting only BMWs and Mercedes while not counting Fords, Chevrolets and Chryslers. The numbers would not make sense or reflect an accurate representation.
It is time to have an open and honest discussion about employer-sponsored plan coverage. Let’s talk about why small employers do and don’t sponsor retirement plans, but let’s do it honestly with accurate data that reflects the true situation we’re in.
W. Andrew Larson is the Director of Retirement Education at the Retirement Learning Center, LLC, in Brainerd, MN.
