Pew Research: Why Small Business Do Not Offer 401k Plans. In an effort to find out why small business do and do not offer retirement plans like 401ks to their employees, Pew Charitable Trust conducted research with 1600 small businesses. The findings are revealing and offer insights on how to motivate companies that do not offer retirement plans like 401ks at work.
Though companies are concerned about their employees’ financial wellness and clearly see how offering retirement plans at work help with recruiting and retaining workers, cost, administrative burdens and lack of knowledge about these plans are the biggest barriers. Fiduciary liability was not cited.
Of the pool of 1600 companies with 5-250 employees, larger firms with more full-time workers in existence longer are more likely to offer a retirement plan.
Small organizations without a plan cite lack of interest by employees who they think would rather have increased salary. More common are healthcare plans and paid time off. Factors that would make companies start a plan are tax credits and increased profits.
Just 34% of employers offer automatic enrollment with just 14% deploying auto escalation.
State auto-IRA initiatives mandating that smaller employers offer a retirement plan are pushing the discussion to the forefront. Though these initiatives are helpful, questions remain whether a patchwork of state requirements with relatively low deferral rates and limited options run by the government are the right solution especially as the needs and motivations of newer companies, not to mention the gig economy, are shifting. Are current plans designed for the younger, more mobile and tech savvy workforce?
Regardless, the new normal is that workers expect their employers to offer financial education and savings tools at work. The question is how to motivate companies and make retirement plans more attractive to them and their workers as well as plan design that significantly increases retirement savings.
Quoting the Pew report:
These findings show that despite the benefits of pro-savings tools, such as automatic enrollment or automatic escalation of contributions, many small employers lack the comfort level or knowledge to take advantage of such tools, or see cost, resources, or a lack of employee demand as reasons not to offer a retirement plan.
