Data & Research August 15, 2017

Majority of Small Businesses Do Not Offer Retirement, Health Benefits

Seventeen percent of respondents to a survey by Paychex said they did not see the need to offer retirement benefits to their employees.
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The majority of small- to mid-sized businesses (SMBs) do not offer health, retirement or other ancillary benefits, Paychex found in a survey of 318 such companies. Only 38% offer such benefits.

“While this contrasts national levels, it does reflect in part the absence of legal requirement for businesses with less than 50 employees to offer benefits—most notably, health insurance,” Paychex says. “Providing benefits is also a matter of economics for many SMBs. Of businesses earning less than $500,000 in revenues, 78% reported that they do not offer benefits. This is in contrast to responses from businesses with revenues of more than $1 million, where 74% confirmed that they do offer benefits to their employees.”

Similarly, 66% of businesses that have been in operation for 10 years or more offer such benefits. However, this drops to 42% for businesses between six and up to 10 years in existence. Likewise, 77% of companies that say they are experiencing stagnant growth do not offer benefits, but 51% of companies that are experiencing fast growth do offer them.

Among the companies offering benefits, the top values they cited from offering these benefits were improved employee morale and ability to attract and retain talent.

For health insurance benefits, the top reason for offering was split between attracting talent (23%) and supporting healthier employees (22%). Only 2% of respondents who offered health benefits reported that they didn’t see a need to offer these benefits.

When considering retirement benefits, minimizing turnover was reported as the most important reason (23%) for offering this benefit, followed closely by the individual need for the benefit (20%). Attracting talent remained important (18%), but 17% of respondents said they did not see the need to offer retirement benefits to their employees.

Among the companies offering health and retirement benefits, they said they found them to be a positive addition to their businesses, with 89% saying a health insurance plan was beneficial and 72% saying a retirement plan was beneficial.

As Paychex concludes, “For businesses, offering benefits to employees can be a challenge. This is especially true the smaller the business is and the business’s economic environment. However, the value of offering benefits to employees, especially health insurance, is unanimously understood and appreciated. This survey showed that the majority of businesses that do offer benefits find them beneficial to their businesses and they see value in the benefits they offer. As largely perceived, if a business doesn’t offer benefits to its employees, a competitor will. As the size of a business grows and revenues increase, the value of benefits becomes clearer, as well as more achievable.”

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The full findings of Paychex’s survey can be downloaded here.

Client Service August 14, 2017

Larger Companies Offering Roth 401(k)s

More than half of employers recently surveyed by Transamerica offer a Roth 401(k).
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The Roth 401(k) that allows participants to make contributions on an after-tax basis while allowing for tax-free withdrawals is increasing in popularity, with large employers taking the lead, according to a new survey by Transamerica.

The study found that 59% of large companies and 60% of medium ones offer this option. Overall, 52% of plan sponsors offer a Roth 401(k). A separate Transamerica survey of workers found that among workers who are both aware of the Roth 401(k) option and offered it by their employers, approximately six in 10 contribute to it.

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Large companies also lead in offering traditional 401(k)s and matching contributions, the study finds. Matching contributions are more prevalent in large companies. Seventy-nine percent of plan sponsors offer a matching contribution as part of their 401(k) or similar plan, including 77% of small companies, 80% of medium-sized companies, and 84% of large companies. Transamerica says, “The employer’s matching contribution is one of the most important features of a 401(k) or similar plan because it incentivizes employees to join the plan and enables them to further build their retirement savings.”

In addition, 71% of employers say their employees view a 401(k) or similar retirement plan as an important benefit. However, it is a luxury enjoyed by only 60% of small companies as opposed to 90% among large companies.

In addition, automatic plan features are more prevalent in larger companies’ plans; 21% of plan sponsors have adopted automatic enrollment, including 31% of large companies, 20% of medium-sized companies and 19% of small companies. Plan sponsors with automatic enrollment report a median default contribution rate of 5% of an employee’s annual pay. Automatic escalation, a feature which automatically increases participants’ contribution rates annually with no action required by participants, has been adopted by 47% of plan sponsors. It is more prevalent at large (52%) and medium (50%) than small companies (44%).

Among plan sponsors not offering automatic enrollment, only 34% plan to do so in the future. Thirty-nine percent do not plan to offer it, and 27% are “not sure.” Among those not planning to offer it, the three most frequently cited reasons are participation rates are already high (39%), concerns about cost (32%) and administrative complexity (20%). According to TCRS’ 17th Annual Retirement Survey of Workers, 89% of workers find automatic enrollment to be appealing.

The survey also found many plan sponsors are not making plans to manage a workforce that is aging and working longer.

Transamerica’s report was drawn from responses to a 21-minute online survey conducted between November 20  and December 20, 2016, among a nationally representative sample of 1,802 employers. The full study “All About Retirement: An Employer Survey 2017″ can be found at Transamericacenter.org.

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