Small business owners employ about one-third of private sector workers, but do not always provide a 401(k) retirement plan.
More than half the workers employed by small businesses lack access to a 401(k) or other work-based retirement plan, according to a new study from the U.S. Government Accountability Office that examines why so many employers fail to provide the key retirement savings vehicle.
Small businesses – those with fewer than 100 employees – employ about 42 million or one-third of private sector workers, said the GAO, but an estimated 51 percent to 71 percent of these workers do not have access to a 401(k) plan. Employees at companies with 100 or more workers are significantly more likely to have access to a 401(k), said the GAO. The share without an available 401(k) is estimated to be between 19 percent and 35 percent.
The GAO presented its findings at a special hearing last week of the Senate Special Committee on Aging, according to USA Today, which noted that Chairman Sen. Herb Kohl, D-WI, indicated the committee was preparing legislation allowing small business owners to pool resources and assets to create a multiple-employer 401(k) plan.
The 401(k) plan is the most widespread type of retirement savings plan used in the private sector, according to the 2012 Retirement Market Insights report by Millionaire Corner. The plans are also known as defined-contribution plans because they are funded primarily by contributions from workers’ paychecks and may also feature an employer match. Total assets held in employer-sponsored retirement plans were $10.4 trillion at the end of 2011, up 1.9 percent from $10.2 trillion a year earlier, according to the Market Insights report.
Plans with fewer than 50 participants account for the largest number of retirement plans, more than 474 million for combined assets of $293.4 billion, according to our report. Though most plans have fewer than 50 participants, assets and participating employees are concentrated in plans with 1,000 or more participants.
Small employers face several challenges to starting and maintaining retirement plans, said the GAO. Many are simply overwhelmed by the number of plan options. Others are daunted by the administrative requirements and the fiduciary responsibilities of the plans, while some said they lacked the financial resources, time or personnel to create and run a 401(k) plan. Many small business owners were unaware of federal initiatives – such as those offered by the Small Business Administration – to support them in forming plans. Some small employers noted that their employees placed more important on health benefits over retirement benefits.
Small business owners called for simpler federal rules regarding 401(k) plan administration and for an increased tax credit for plan startup costs, according to the GAO, which recommended the Department of Labor, the Treasury, the IRS and the Small Business Administration work together to develop proposals – such as asset pooling among small business owners – to help break down barriers to small employer plan sponsorship.