Small Co.'s Struggle with Retirement Plans

A news release said the 2004 Transamerica Small Business Retirement Survey from the Transamerica Center for Retirement Studies found that those difficulties are fueling a 25% gap in plan access between small (10 to 499 workers) and large (500 or more workers) businesses.

“The 50% of Americans employed by small businesses continue to be at a disadvantage when it comes to retirement savings,” said Catherine Collinson, retirement and market trends expert for the Transamerica Center for Retirement Studies, in the news release. “Plans at larger firms tend to be more firmly established and with a larger infrastructure. These companies have shown greater success encouraging participation and engagement.”

While many workers at larger firms have access to company-sponsored retirement plans, one-in-four (25%) small business employees do not. Larger firms are also more likely to offer a company match, and tend to provide employees with more investment choices. Benefits managers at larger firms also report spending more time reviewing the investment options than their counterparts at small businesses, according to the poll.

Larger employers also seem to be more successful at encouraging participation and employee engagement in their plan. Workers at larger firms are more likely to participate in their company’s 401(k) plan (79% versus 72%) and contribute at slightly higher levels (8.6% versus 8.1%) than are their small-business counterparts. They also spend more time monitoring their retirement accounts (an average nine hours versus five hours per year).

An Important Issue

The workers say it’s no small matter. More than half (54%) of small business employees would choose a job that provides excellent retirement benefits but meets only their minimum salary requirements, versus one that provides an excellent salary but fewer retirement benefits. Of the small business employees who don’t have plan access, over half are at least somewhat likely (26%) or very likely (29%) to consider leaving their current company in order to take a nearly identical position for a similar firm with a plan.

Yet small business employers don’t seem to be getting that message. Just 34% of employers believed their workers would choose retirement benefits over salary. While 92% of workers rated a 401(k) or similar retirement plan as very important, just 75% of employers thought their workers would feel this way.

Workers are also less likely than employers to feel that their company:

• manages the retirement plan program with the best interest of the employees in mind (44% vs. 82%)
• provides accurate information about how the plan is doing (57% vs. 66%)
• gives them the right information about their retirement plan (51% vs. 66%)
• gives out enough information about their retirement plan (57% vs. 69%).

The survey found that employee confidence is on the rise – small business workers were more likely in 2004 to believe their personal finances will improve this year (59 % vs. 49 % in 2003). This confidence may be contributing to an increase in overall participation. At 72%, participation levels are at their highest since the Center first conducted its annual survey in 2001.

However, this good news may be spurring a false sense of worker security. Reversing an upward trend from the previous year, small business workers this year are less likely to be very involved in monitoring and managing their retirement savings (70% in 2004 versus 79% in 2003 and 67% in 2002). In addition, fewer workers this year feel the need to receive more information and advice from their company on how to reach their retirement goals (57% versus 65% in 2003).

More information about TransAmerica Retirement Services is at www.ta-retirement.com .