Small business employees lose out on benefits

2007

The split between the haves and the have-nots in the American workplace is widening, with workers in smaller businesses not only less likely to have access to health care benefits, but also left high and dry when it comes to company pensions.

A study by the Transamerica Center for Retirement Studies (TCRS) has concluded that smaller business employees are at a distinct disadvantage to their colleagues in bigger firms when it comes to retirement savings.

Small business employees were less likely to have access to an occupational or employee-funded retirement plan and were less active than their large company counterparts in saving for a comfortable retirement.

The survey follows a poll last month by the National Small Business Association that found rising insurance costs meant a growing proportion of smaller businesses were now no longer offering health care benefits either.

The TCRS study warned the situation over savings would inevitably mean workers in small businesses facing a tougher retirement, with more being forced to fall back on social security as their primary form of income in retirement.

In the poll of more than 1,400 workers, fewer than a fifth of the small business employees polled reported having saved $100,000 or more in all household retirement accounts.

This compared with nearly a third of employees at large companies who had squirreled away that amount or more.

Similarly, only 37 per cent of small business employees believed their employer-sponsored retirement plan would be their primary source for income during retirement, while 19 per cent still expected to rely on social security as their primary source.

This was in stark contrast to nearly half of large company employees who expected their retirement plan to be the primary source and the tenth who expected to rely on social security.

"Not enough is being done to help small business employees prepare for a comfortable and secure retirement," warned Catherine Collinson, retirement and market trends expert for the centre.

"Lower savings rates ultimately lead to a reliance on the future of social security, which underscores the need for a wake-up call among employers and employees alike," she added.

A major reason for this gap had to do with access to a retirement plan. Data from the survey found that just under two thirds of small business employees reported being offered an employee-funded retirement plan.

That may sound good, but compared with 84 per cent of employees working within larger companies.

Worryingly, a fifth of small business employees reported not receiving any form of retirement benefit from their employer at all.

Even among those with access to a plan, only 69 per cent of small business employees reported being offered an employer matching contribution, against 86 per cent of large company employees.

But it was not all down to employer, the centre stressed. When offered a plan, small business employees were less likely than employees of large companies to participate or have money invested in their company plan (70 per cent versus 76 per cent).

Small business employees also tended to contribute a slightly lower percentage of their salary, the survey said.

Small business employees were less likely to be saving outside of work (52 per cent against 61 per cent of large company employees).

And of those small business employees that were not currently participating, 31 per cent said they were not planning to do so in the future.

The key factor behind this discrepancy, said the TCRS, was that small business employees simply tended to be paid less well than their counterparts at larger companies.

"As the numbers of small businesses and small business employees in the U.S continue to grow, it becomes increasingly vital that these employees receive the tools they need to prepare for a comfortable retirement," stressed Collinson.

The worry for the future was that the situation showed little sign of improving any time soon, said the centre.

Nearly three-quarters of small businesses that did not currently offer a retirement plan said they were unlikely to in the near future.

And just three per cent of small businesses said they were "very likely" to offer one in the near future.

The most common reasons given for not likely offering a plan in the next two years were that the company was not big enough, a lack of management or employee interest and the cost.

"While these reasons might be valid, it's possible that they may too be misconceptions. Employers need to weigh these reasons against the costs of not offering a plan – such as a dissatisfied or shrinking staff," added Collinson.