Saving through a retirement plan? Not if you work at a small business, Pew says

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A Pew Charitable Trusts survey aimed to discover why small and medium-sized businesses don’t offer retirement savings plans to their employees (AP PHOTO/LM Otero, File)

New research from the Pew Charitable Trusts shows that small- to medium-sized businesses — those with five to 250 employees — are least likely to offer retirement-savings plans.

Just over half — 53 percent — of the small and midsize American employers surveyed offer a retirement plan to workers, Pew said in a report released this week.

Ninety-three percent of employers surveyed said they believe their employees would prefer higher salaries over better retirement benefits, which may be why many companies put a greater priority on pay, paid time off, and health plans, the report said.

Pew researchers surveyed more than 1,600 businesses nationwide in 2016, contacting owners, top executives, and human-resources managers in an effort to identify the obstacles to, and motivations for, offering retirement plans. The report, one of the few centered on retirement plans since the Great Recession, surveyed employers that both do and do not offer such plans.

Why don’t these businesses offer plans? The survey found, to no surprise, that business owners are afraid of high costs. Thirty-seven percent of employers that do not offer retirement plans pointed to such barriers as the financial cost, and 22 percent said the organizational resources needed to start a plan proved to be a challenge. About 17 percent said they do not offer retirement plans because their employees aren’t interested.

Why, then, do some businesses offer plans? Employers said they want to help workers save, and also to attract and retain talent. Most who offer plans also match some contributions, which boosts employee participation and helps build savings more quickly.

Relatively few employers use other savings sweeteners, Pew found. For example, just 32 percent use automatic enrollment, while only 14 percent use automatic escalation of contributions.

“Five states are now looking at implementing auto-deduction IRAs, including California, Oregon, Illinois, Connecticut, and Maryland,” said John Scott, director of the Retirement Savings Project at Pew. “Oregon will likely be first out of the gate this fall.”

Though most employers surveyed were at least somewhat familiar with 401(k) plans, far fewer knew about other options, such as Simplified Employee Pension (SEP) plans, Savings Incentive Match Plan for Employees (SIMPLE) IRAs, or myRAs, all of which are designed for small firms or individuals.

About 92 percent of employers that provide retirement benefits said they offer a defined contribution plan, such as a 401(k), a SIMPLE plan, or a profit-sharing plan. Twenty-three percent said their business offers a defined benefit plan, such as a traditional pension, while 22 percent said they offer a hybrid plan that includes both a defined contribution and a defined benefit plan. And 35 percent reported that their business offers more than one retirement-plan type.

Most companies without plans said tax credits to offset start-up expenses would improve the likelihood of their offering retirement plans.

Businesses in the South and the West are about half as likely to offer plans as those in the Northeast, Scott said. That mirrors Pew’s analysis of state-by-state access to employer-sponsored retirement plans, which showed that full-time, full-year employees in Florida, New Mexico, and Texas reported the lowest rates of access to retirement plans.