A Third of Small Firms Offer Pensions – Study

October 19, 2005 (PLANSPONSOR.com) - Three of 10 small company owners sponsor a pension plan for their employees - most commonly a K plan in which nine of 10 workers participate, a new poll found.

A new NFIB National Small-Business survey of entrepreneurs found that a retirement plan is usually second on the list of worker benefits offered – typically behind workplace health insurance. Some 21% more respondents listed health plans first ahead of pension programs.

Among those that provide both, the health benefit was started first by an eight-to-one margin. Of those who do not currently offer either, a health plan would come first by a five-to-one margin.

“The preference is significant,” said William Dennis, senior fellow at the NFIB Research Foundation, in the news release, “because it suggests that the current cost problems with health insurance do not just affect that benefit, but also limit small-employer pension sponsorship.”

A Traditional Retirement?

When it comes to their own situation, retirement is apparently not in the dictionary – at least not the kind where people stop work entirely.

The survey found that nearly half (46%) of small employers have no plans to stop working completely as part of a traditional retirement. Instead, they expect to phase out of the business rather than end their involvement abruptly. Considering companies’ need to keep a pool of available specialized talent, this trend is a good thing, researchers said.

“Small-business owners are typically active people who are energized by the challenges and rewards of building an enterprise,” said Dennis. “And they intend to remain active later in life, long after most others have retired.”

Of the entrepreneurs polled, 68% of those surveyed reported giving considerable thought to retirement, financial planning for that event, and their relationship to the business at that stage in their lives.

Half said they plan to dispose of their current businesses through sale or closure at or prior to retirement. Slightly less than one third (29%) expect to pass the business on at that point, and 22% foresee neither selling nor relinquishing their operation.

Nearly eight in 10 of those surveyed are somewhat confident that they will have adequate resources to live comfortably in retirement. This may be overly optimistic because the data show that 38% admit they are behind in acquiring financing for their post-ownership years.

The most common sources of expected income these entrepreneurs envision as funding retirement are savings and investments unrelated to the current business – named by 91% – and Social Security benefits, cited by 88%. However, few expect Social Security to make a substantial contribution to their retirement income. The next most frequent expected source, identified by 80% of respondents, is the sale of the business or its operating profit.

In terms of amount received, the most important sources of income will be the savings and investments that are not related to the business, and the sale of the business or its operating profit, poll data showed.

A copy of the study report is here .