Changes in public policy might be necessary to get more American workers into retirement plans, suggests a recent study of small and midsize businesses.
Most smaller employers want to offer workplace retirement plans, but they usually wait until they have established scale and stability before doing so, according to a report from Pew Charitable Trusts that focused on businesses with five to 250 workers.
Even so, some companies don’t establish plans no matter how large they’ve grown or how long they’ve been in business.
According to a Pew issue brief released in June called “Employer Barriers to and Motivations for Offering Retirement Benefits,” workers at these small and midsize businesses are the least likely to have retirement savings options, which has led many states to consider sponsoring 401(k)-like retirement plans themselves, or to offer incentives for employers to start plans of their own. Just over half of the business owners and managers surveyed by Pew reported offering a retirement plan.
For these smaller businesses, the most common barriers are the financial cost, cited by 37 percent of the respondents, and a lack of organizational resources, cited by 22 percent. Approximately 17 percent said they would not offer a retirement plan because their employees are not interested in one.
Pew also cited employers’ lack of awareness about plan and account options as a barrier to establishing a retirement benefit.
“Not all barriers to offering plans, such as business profitability, can be addressed by public policy, but state initiatives could help mitigate other obstacles such as business leaders’ limited knowledge about various plan options,” said the report. “Policy makers could also boost motivation by providing tax credits to offset the costs of establishing and running a plan, or by offering low-cost options such as a multiple employer plan or a payroll deduction auto-IRA.”
It’s more likely for a business to offer a retirement plan after it has been operating a few years or when it is approaching 50 employees. Pew also found that firms with a greater percentage of full-time workers were more likely to launch a plan.
The factors that most influence a company’s decision to offer a retirement benefit are an increase in its profits, cited by 67 percent of the respondents, and tax credits for establishing a plan, cited by 60 percent.
For many small and midsize businesses, retirement benefits are not a first priority. Eighty-six percent of Pew’s respondents said instead it was paid time off, while 62 percent said it was health plans.