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Why Don’t (More) Small Businesses Offer Retirement Plans?

A new survey offers insights on why they are reluctant to do so, and what might move that needle.

The Pew Charitable Trusts recently surveyed more than 1,600 small and medium-sized business owners or managers, and found that employers most often cited expense, limited administrative resources, and lack of employee interest as main reasons for not offering retirement plans. Among those, 37% cited “too expensive to set up” as a “main” reason, and 71% as a reason. A lack of resources to administer the plan was cited by 22% as a main reason, and 63% as a reason. “Employees not interested” was a reason for half the respondents, and a main reason for 17%.

On the other hand, nearly a quarter (22%) noted they hadn’t thought about it. And three-quarters of business owners who do not offer a plan said that under current circumstances, they would be no more likely to offer one in the next two years than they are now.

Moving the Needle?

As for what could lead employers to offer a plan, factors include greater profitability, financial incentives and increased demand from employees. Of those factors, an increase in the business’s profits was the most-cited item to make it much more likely to offer a retirement plan in the future, but that was not far ahead of “increased business tax credits for starting a plan” in that regard. Increased demand from employees was the third-most likely to make it much more likely.

On the other hand, majorities said that availability of easy-to-understand information, reduced administrative burdens, and greater tax advantages for executives were not as likely to lead to retirement benefit offerings.

State-Run Sense

When asked about IRA plans funded entirely by employees that use automatic enrollment and predetermined deductions from their pay, employers without plans were either somewhat or strongly supportive of the concept, and those who did not currently offer a plan and were in favor of the concept were most likely to cite as a reason (76%) that the auto-IRA plan would help their employees.

At the same time, that support varied somewhat depending on which entity served as the program sponsor. Support for an auto-IRA initiative proved highest if the plan would be sponsored by an insurance (72%) or mutual fund company (82%); it dropped if a state (41%) or federal government (44%) ran the program. More specifically, it dropped by half. Still, more than 40% supported a government-run program.

‘Opposition’ Research

Among those who opposed such a plan, nearly half (42%) said they didn’t think workers should be automatically enrolled in a retirement plan, while about a third (31%) said they didn’t think their workers want/need a retirement savings program. About 1-in-10 (11%) were worried about the costs of enrolling workers and sending their contributions to the plan.

Those concerned that the advent of state-run auto-IRA programs might undermine existing plans might draw comfort from another of the survey’s findings. Specifically, when employers without plans were asked what they would do if they had to choose between a state-run auto-IRA retirement savings plan and starting their own, just over half (51%) said that they would start their own – and only 13% expressed interest in switching to the state-run program.

As for the exchanges that several states have launched to help small business owners find suitable providers, most (86%) employers said that such an approach would be either very or somewhat helpful to them.