Entrepreneurial Spirit Runs Counter to Plan Participation

April 24, 2001 (PLANSPONSOR.com) - The same factors that encourage small business owners to become entrepreneurs also tend to discourage participation in retirement plans - and might tend to discourage establishing those plans for others.

According to the study by the Department of Consumer Sciences and Retailing at Purdue University, wage earner participation in a retirement plan was predicted by:

  • being older
  • having some college education or a bachelors degree
  • working full time
  • working for a larger firm
  • having a good idea of next year’s income

The study found that the factors that influenced the decision to be self-employed were also likely to decrease participation in plans, although it is possible that the self-employed are planning for retirement through other means such as investments in their businesses.

An alternative explanation could be that they plan to work indefinitely and have therefore delayed retirement planning.

In Common

However, the study also found that some of the determinants of participation were comparable for both wage earners and the self-employed.

These included:

  • higher income
  • a graduate education
  • being white
  • the belief that past income had outpaced inflation

The only other factor predicting plan participation for the self-employed was the expectation that future income would increase more than prices would.

No Plans

In addition, the research found that small employers who do not offer retirement plans have:

  • lower revenues
  • younger employees
  • employees who earn lower salaries
  • employees with less formal education
  • employees who tend to work short term

While those wage earners who do not participate in retirement plans are generally:

  • younger workers
  • non- white
  • those with lower incomes
  • less educated
  • part-time workers
  • those who work for smaller firms

Many of these wage earners may not be eligible for retirement plans because they have not worked long enough, or they may be eligible but are not participating, or are employed at a firm that does not provided a retirement plan.