Small Firms Underestimate the Value of a Retirement Plan
Small businesses seriously underestimate their employees' interest in having an employee-funded retirement plan, according to a recent study.
The 2004 Transamerica Small Business Retirement Survey found that 92% of small business employees view an employee-funded retirement plan—such as a 401(k) plan, SEP, or SIMPLE IRA—as an important benefit. Furthermore, 54% of this group said they would choose a job that met only their minimum salary requirement but provided excellent retirement benefits, over a job with an excellent salary but lesser retirement benefits (40% would choose the higher salary). And, of small business employees without an employee-funded retirement plan, 52% said they were at least somewhat likely to consider leaving a current job in order to take a similar job in a company with a retirement plan (up from 42% in 2003).
Small businesses, the survey indicates, aren't quite tuned into the value that their workers place on access to an employee-funded retirement plan. Only 65% of the small businesses (10-499 employees) surveyed offered an employee-funded retirement plan (compared with 95% of larger firms); just 33% thought their workers would choose retirement benefits over salary; and only 33% thought employees considered a 401(k) plan to be a very important benefit.
In addition to being more likely to offer a 401(k)-type of plan, larger firms also saw higher employee participation in such plans when offered. 401(k) plan participation averaged 79% in large firms, compared with 72% in small firms. A key participation driver—an employer matching contribution—was available in 86% of the large employer plans, compared with only 75% of the smaller firms. Larger firms also were more likely than smaller businesses to evaluate their retirement benefits offerings each year (89% versus 75%), and to consider a 401(k) plan as an important tool in attracting and retaining employees (94% versus 73%).
With concerns about the future of the Social Security system and the aging of the work force, the value that workers place on access to an employee-funded retirement plan is likely to grow. In order to remain competitive in attracting and retaining top employees, it is important for small businesses to better understand the importance of a retirement plan as a recruitment tool. In fact, the Transamerica survey reported that 36% of the small companies without an employee-funded retirement plan said they were likely to begin to offer one within the next two years. This figure represents a substantial increase over the 23% reported in 2003, indicating that small companies are beginning to get the message about the benefits that an employee-funded retirement plan can bring to them and to their employees.
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