The ‘Better’ Business Bureau

  The solution to the coverage gap lies through small business—but only about a third have been approached in the past year about offering one, according to a new survey.

That’s not exactly a new revelation—any number of surveys and government data throughout the years indicates that the vast majority of large(r) employers already offer a workplace retirement plan.[i] The coverage “gap” so often held out as a sign of “failure” by the critics of the 401(k) lies almost exclusively among smaller employers. Which means that closing it will require a focus on small business—and understanding the “resistance.”  

At the outset, it’s worth acknowledging a certain truism about small plans (the kind small businesses set up)—they are sold, not bought. Consequently, it was disappointing to see that datapoint about just 31% of the businesses that do not currently offer a plan having been approached in the last 12 months about offering one.[ii] 

That survey finding was included in a recent report by the Employee Benefit Research Institute (EBRI), along with the Center for Retirement Research at Boston College and Greenwald Research. Asked why they weren’t offering a plan, the vast majority (74%) said that their business was either too new or too small. That said, among the highly cited reasons for not offering a plan, nearly as many (72%) said required company contributions are too expensive (yes, they mistakenly assumed company contributions were required[iii]), 70% said their revenue is too uncertain to commit to a plan, and 70% said it costs too much to set up and administer. In sum, most of the resistance came down to financial factors—and considering the failure rate of most small businesses, that’s hardly surprising.[iv]  

Indeed, asked about factors that would encourage them to establish a plan, the most cited reason (by 79%) was an increase in the business’s profits. But the next set of reasons most cited as likely to get small businesses to offer a plan were business tax credits for starting a plan (75%) and a plan with low administrative requirements and/or no employer contributions (74%).

Now, in that context, consider that among the small business owners not offering a plan, almost three-quarters (72%) said they were NOT aware[v] of tax credits up to $5,000 being available to cover the costs of starting a retirement plan—though 78% said the tax credits would make it at least somewhat more attractive to offer a plan[vi]—and more than a quarter (28%) said it would make it MUCH more attractive![vii]

The good news is, courtesy of the tax incentives in the SECURE 2.0 Act of 2022 (and the ability to shatter some myths about plan design), we have a message that could make a real difference in plan adoption—one that would be good for business—and your business—as well.

- Nevin E. Adams, JD


[i] From 2010–2023, the fraction of establishments with less than 50 workers who offered a retirement plan ranged from 42%–52%. For establishments with 50–99 workers, 70%–79% offered a plan, and 78%–91% of establishments with 100 or more workers offered one. See Bureau Labor Statistics, “Employee Benefits in the United States, March 2023,” Historical Tables.  

[ii] However, the small businesses with 50–100 employees were much more likely to have been approached, with 58% saying they had been. On the other hand, that’s roughly (only) half.

[iii] The researchers commented that it was interesting that “the one statement that was not true had the highest percentage of business owners agreeing with it, as 63% of these owners agreed that employer contributions were always automatically vested. In both cases, those offering a plan were more likely to agree with the statements than those that did not offer a plan. Thus, it appears that small business owners don’t understand the potential flexibility in offering an employment-based retirement plan, which is not unexpected, as larger employers typically have experts or access to experts on benefits that would not be available to smaller businesses.”

[iv] Somewhat surprisingly, the administration being too burdensome and the possibility of being out of compliance with government regulations or held liable for investment decisions made by employees—obstacles often targeted in legislation and regulatory safe harbors—were the LEAST likely to be cited as a reason for not offering a plan.

[v] Awareness of these tax credits was different by the size of the business, as 50% of the small business owners with 50–100 employees were aware of the tax credits vs. less than 25% of the small business owners with fewer than 50 employees. Businesses with 10–19 employees were the most likely to say that the tax credits would make it at least somewhat more attractive to offer a plan.

[vi] Despite being lower ranked than the attraction and retention of workers, roughly two-thirds of the small business owners said that tax advantages for key executives and allowing the owner to save for retirement on a tax-deferred basis are reasons for offering a plan—though only about 5% of the small business owners cited each of these as the most important reason.

[vii] Half (51%) of small business owners offering a plan were not aware of the Saver’s credit/match—while 83% of those not offering a plan weren’t aware—though 69% of the small business owners said the Saver’s credit made offering a retirement plan at least somewhat more attractive. 


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