Participation Gap Emerges in Small Biz K Plans

October 27, 2003 ( - There appears to be an emerging generation gap in retirement savings, and it doesn't bode well for younger workers, according to a new survey.

The 2003 Transamerica Small Business Retirement Survey found that retirement plan participation among Gen Xers decreased significantly over the past year, dropping from 69% in 2002 to 59% in 2003, even though Baby Boomers increased their participation rates from 71% to 77%.

Ironically, twice as many Gen Xers as Baby Boomers claim to have begun retirement savings before age 25 (71% vs. 30%). In fact, one in four (39%) Baby Boomers did not begin saving for retirement until they attained age 31 or older, according to the report.

Benefit “Stick”

When it comes to retirement benefits, small businesses have hung tough, with just 5% choosing to reduce or eliminate those benefits. They have instead opted to downsize (32%), frozen salaries (23%), or eliminated bonuses (19%), according to the report. Nearly three-fourths (74%) of employers feel employee-funded retirement benefits are very/somewhat important in attracting employees, up from 67% in 2002, and a similar 75% of employers feel employee-funded retirement benefits are very/somewhat important in retaining employees, up from 72% a year ago.

That confidence appears to be well placed. While health insurance remains the most important benefit to workers (cited by 96%), retirement benefits were close behind – a full 91% rated them as very/somewhat important, up from 83% in 2002, while the number rating health insurance very or somewhat important remained nearly unchanged (96% in 2003 vs. 97% in 2002 – see Survey: Retirement Plans Still Employee Magnet ).

More than half (51%) of employee respondents would rather have a job that meets their minimum salary requirements but offers excellent retirement benefits than a job with an excellent salary but poor retirement benefits. On the other hand, less than a third (30%) of employers thought that employees would choose the job with the excellent retirement benefits over one with a higher salary and less favorable benefits. Both employee preference and employer evaluation of that preference remained relatively unchanged from last year's survey (see Employees Value Retirement Accounts ).

More than two-thirds of small business employer respondents (68%) offer a matching contribution to participants, and more than half (56%) rated it as very important (91% rated a match very/somewhat important). While employers recognize workers' desire to receive a company match, they appear to underestimate the strength of workers' sentiments, with just 70% of employers saying it was very/somewhat important.

Knowledge Needed

Three-fourths of workers (71%) believe strongly/somewhat that they "do not know as much about investing as they should," and the number of workers who feel it is better to manage their own retirement savings rather than have it managed by outside experts has declined noticeably in a year's time, dropping to just 50% from 63% in 2002.

More than half (52%) the workers surveyed say they are saving for retirement on their own, outside any work-related retirement plan, but that is down from 59% in 2002 and 61% in 2001.

The second survey released by the Transamerica Center for Retirement Studies was conducted by telephone by Harris Interactive between August 12 and September 3, 2003, and included 300 small business executives and 600 full-time small business employees (ages 18+). The companies varied in size from 10 to 500 employees.

You can find out more about the survey at