Despite the SECURE and SECURE 2.0 acts essentially making it free for small business owners to offer a retirement plan, new research finds that many are still harboring old excuses for not providing one.
The research published by the Employee Benefit Research Institute (EBRI), Center for Retirement Research at Boston College and Greenwald Research found that other than “more profits,” no single reason will lead more small businesses to offer retirement plans.
Also, many small businesses were found to not have experience working with an outside organization for payroll or administering other benefits, which can lower the ability or comfort in looking into what needs to be done to offer a retirement plan. Perhaps not surprisingly, the small business owners were also found to lack an understanding about policies, tax credits and regulations regarding plans.
The report, “Small Business Retirement Survey: Policy Knowledge and Reasons for Offering or Not Offering a Retirement Plan” is the result of a survey of small businesses conducted in order to give a more current understanding of attitudes, concerns and knowledge about retirement plans.
Additional findings in the report include the following.
State efforts. One positive finding is that the efforts by the states to launch retirement savings program for those private-sector employers that don’t offer one is not expected to have a major impact on those employers that do offer one.
In this case, the research found that 47% of the small business owners who were offering a plan and 22% of those not offering a plan said they were aware of states launching programs requiring employers without a retirement plan to automatically enroll their employees in an IRA.
Among the small business owners offering a plan, only 21% said they would stop offering their plan if this policy were adopted in their state, while 68% said they would continue to offer their plan.
Tax credit awareness. Amazingly, even after all the national press coverage of SECURE and SECURE 2.0, most surveyed small business owners indicated they were not aware of the credits.
According to the findings, among the small business owners not offering a plan, nearly three-quarters (72%) said they were not aware of tax credits up to $5,000 being available to cover the costs of starting a retirement plan. One positive, however, is that 78% said the tax credits would make it at least somewhat more attractive to offer a plan.
Recruitment and retention. Another helpful finding is that more than 9 in 10 of the small businesses offering a plan say the reason they offer one is the positive effect on employee attitude and performance. What’s more, 90% say that a competitive advantage for the business in employee recruitment and retention is a reason for offering a plan. In fact, 30% say the positive effect of offering a plan is the most important reason, while another 25% say the competitive advantage is the most important reason.
Excuses for not offering. For the small businesses not offering a plan, the costs of administering a plan and the profitability of the business were among the reasons that were most likely to be considered for not offering a plan.
The business is “too new or too small,” coming in at 26%, was the reason most cited as the most important for not offering a plan. Yet, numerous other rationales across many factors were just below “too new or too small” as being the top reason—suggesting that no single reason will clearly be the most effective in increasing retirement plan offer rates, the report notes.
“The most important factor leading small businesses to consider offering a plan was an increase in the business’s profits,” explained Craig Copeland, director of Wealth Benefits Research at EBRI. “There were other reasons that were cited less, such as government mandates, lower administrative requirements, tax credits, and demand from employees. So, there isn’t a specific reason or type of reason that stands out as leading more small businesses to consider offering a plan.”
The survey was conducted between February and April 2023 among 703 small businesses (100 or fewer workers) with 323 offering a plan and 380 not offering a plan. The questions focused on why businesses do or do not offer a retirement plan.
“Without some direct interaction with small business owners, it will be hard to greatly increase the percentage of small businesses offering retirement plans, particularly among those that are the smallest,” added Copeland.
The EBRI research director further observed that the rules and options for offering retirement plans are not well understood, and many of the business owners are experts in something other than benefits and do not have a benefits specialist on staff.
“Thus, increasing offer rates among small businesses is going to require creative methods to reach them with the necessary information and infrastructure for the administration of retirement plans,” he concluded.
A summary of the research report can be viewed here.
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