Perceived Costs, Resources Top Reasons for Not Offering Retirement Plan

“Too expensive to set up” or “my organization does not have the resources” were the top two reasons cited by small to midsize businesses for not offering a retirement plan to their employees, according to new research by Pew Charitable Trusts.

In a June 2017 issue brief, “Employer Barriers to and Motivations for Offering Retirement Benefits,” Pew says that many employers would like to offer retirement savings options, but feel they face numerous barriers to doing so. “Too expensive to set up” was the most common response, coming in at 37% among businesses without plans, followed by “not having the resources” at 22%.

In addition, some respondents said their mix of workers – especially if they were comprised of low-wage or short-term employees — resulted in limited employee demand for retirement benefits. Pew notes that one-sixth of respondents said they don’t offer a plan because their employees are apparently “uninterested.” The findings also show that 93% believe their employees would prefer higher salaries over better retirement benefits, which Pew suggests may be a reason some firms place a higher emphasis on pay and other benefits.

A lack of familiarity with retirement plan options also appears to be a barrier to providing a plan, according to the report. While 87% of respondents were very or somewhat familiar with 401(k) plans, more than 60% were “not at all familiar” with either a SEP or a SIMPLE plan, even though those plans are designed for small employers.

For those companies that offer plans (53% of survey respondents), helping employees save for retirement, recruitment and retention, and positive impact on employee performance were listed as the main reasons for offering a retirement plan.

Pew further notes that older and larger firms are more likely to offer retirement plans, but the “relationship is not linear” — that is, the likelihood of adding a plan grows fastest in a company’s first few years or as it approaches 75 employees, but the likelihood gradually tapers off after a certain point.

When asked which circumstances would most likely motivate a company to offer a retirement plan, the most common responses among businesses without a plan were a change in their financial position or additional government incentives. An increase in business profits was the top motivation, with 67% saying it would make them either somewhat or much more likely to start a retirement plan. “Increased business tax credits” was cited by 60% of respondents who said they would be either somewhat or much more likely to start a plan. Pew said that despite these findings, there is a limited correlation between motivating circumstances to offer a plan and the main reasons employers gave for not doing so.