A range of forces buffeting the U.S. economy — from rising health care costs to a loss of full-time jobs and a decline real wages — help to explain the lack of retirement preparedness in the U.S.
One other factor gets, perhaps, too little attention: the lack of retirement benefits offered by small companies to their workers.
For evidence as to the size of the problem, look no further than at a new report from ADP Research Institute. The study, “Retirement Savings Trends: How employers can extend coverage and simplify the retirement readiness process,” reveals that just one-third of small businesses with 20 or fewer employees offer retirement benefits. That compares to nearly 98 percent of companies employing 5,000 or more workers.
Now in its second iteration, the study examines companies (by size and type of industry) that offer retirement benefits. The research details retirement savings behaviors of approximately 10 million U.S. employees between the ages of 20 and 69 with total annual compensation of $20,000-plus from about 161,000 organizations.
The lack of retirement savings at small businesses with 20 or fewer employees is compounded by the low participation rate at companies that do offer retirement benefits. Only 48.2 percent of employees at these businesses join an employer-sponsored retirement savings plan. Contrast this with businesses that have 20-49 employees (75 percent) or 50-499 employees (93.7 percent).
Among the survey’s key findings:
By industry, the percentage of companies offering retirement benefits varies from manufacturing (67 percent) to leisure and hospitality (23 percent).
As employees draw closer to retirement age, more participate in their plan offering. Overall participation rates increased from 41.1 percent for employees aged 20-24 years to 65.6 percent for employees aged 55 plus.
Similarly, salary deferral rates increased with age, with employees aged 20-24 years deferring on average 4.6 percent of salary and employees aged 55-plus deferring on average 8.5 percent of salary. The pattern of older workers saving more held true for both genders.
Consistent with 2013, participation and savings rates vary widely by industry. For example, 74.5 percent of information sector employees are saving for retirement — more than double those employed in the leisure and hospitality industry.
Regardless of industry, the proportion of employees saving for retirement continued to increase with company size. As in 2013, savings rates declined as company size increased. But irrespective of company size, a higher proportion of workers at higher compensation levels saved at a higher rate.
When considering compensation groups individually, the research once again shows that in most compensation categories not only are more women saving for retirement than men; they also were saving at slightly higher rates.