Retired preparedness has been a buzzword in the American psyche for the last few years with the pitch increasing in the post-Great Recession environment. As droves of baby boomers approach retirement age, many with nest eggs ravaged by the financial crisis, there has been a concerted effort, both public and private, to ensure that Americans are adequately saving for their retirement.
It is no surprise then that a recent Transamerica Center for Retirement Studies (TCRS) report found that 88 percent of small company workers value 401(k) plans such a SIMPLE IRAs or simplified employee pensions plans (SEPs) as a crucial benefit. What could be deemed surprising is that only 58 percent are offered such plans by their employers.
The report, part of the 14 annual Transamerica Retirement Survey, examines the retirement planning environment for employers and employees in the small business landscape across the country. Retirement preparedness is a critical issue facing the country, especially in the small business realm, so much so that Catherine Collinson, president of TCRS, has been asked to testify to the results of the survey before the U.S. House of Representatives Committee on Small Business.
Because small businesses are a vital driver of the U.S. economy, the retirement benefits that they offer to their employees can both positively and negatively impact the retirement outlook of millions of Americans.
The report defines small companies as those with 10-499 employees and further delineates between micro companies (having 10-99) employees and small nonmicro companies (having 100 to 499) employees.
The report and the survey that it was based on found that 72 percent of small companies offer 401(k) plans or a similar employee-funded defined contribution (DC) plan. Seventy-one percent of micros and 89 percent of small nonmicros did the same. Comparatively, 95 percent of large companies (those with more than 500) employees availed them of a similar plan.
Interestingly enough, despite a fairly high percentage of small businesses offering some type of retirement planning vehicle, there is a fairly significant number of employees who do not enroll. This, in turn, has prompted advocacy groups and some public policy experts to advocate for automatic enrollment. As the name implies, employees are automatically enrolled in the retirement plans offered by their employer with the option to opt out rather than the other way around. The study also encourages small business employers to offer retirement plans as part of a comprehensive benefit plan which includes health and welfare benefits.
The onus, however is not squarely on the shoulders of small business owners, policymakers can take action in the regulatory arena to make it easier for employers to offer these benefits to their employees. The report suggests an increased tax credit for employers who offer retirement plans, the adoption of automatic enrollment coupled with increased default contribution rates that also provide employees with a tax credit for enrolling.
As part of the small business model many employees are part time. The report uncovered that at small companies, 36 percent of part-time workers were offered retirement plans compared to 68 percent of full-time workers. Notably, there was also a sizable discrepancy between part-time and full-time workers at large employers.