Data & Research December 6, 2012

Only 33% of Small Businesses Offer Retirement Plans

Although 75% of small-business owners view their employees as family, cost considerations prevent them from offering a retirement plan.

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Small businesses’ decision to offer a retirement plan, be it a 401(k), SEP or SIMPLE plan, is based both on economic considerations as well as a sense of accountability, the Bank of America Merrill Lynch survey of 700 small-business owners found. Among those that offer a plan, 37% said they feel responsible for ensuring their employees have sufficient assets to sustain them in retirement. Another 29% said helping employees save for the future and addressing their employees’ financial wellness is important for their company, and 26% view it as a recruiting and retention tool.

Those who offer a retirement savings plan offer other benefits, as well, such as paid time off (86%), bonuses (83%), flex time or alternative work arrangements (67%), financial education or advice (36%).

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Among those who do not offer a retirement savings plan, only 18% said they were concerned about their employees having enough money in retirement. The most common reason why they do not offer a retirement savings plan is that employees have not asked for a plan (54%), followed by the belief they do not employ enough employees to warrant a plan (53%), it will not help the firm’s “personal economy” (39%), it is too expensive (37%), they do not want to be obligated to contribute (28%) and it’s simply too confusing (26%).

Rick Irace, head of institutional retirement and benefit solutions for Bank of America Merrill Lynch, said there was a small disconnect in the survey findings: 75% of small-business owners think of employees like family but then stop short of helping them prepare for retirement. “Just 37% of those that offer a plan feel a sense of responsibility,” Irace told PLANADVISER.

Irace also said that small-business owners would likely see improved profits if more than 30% viewed retirement plans as helping their employees be “financially fit—more focused and productive.”

Nearly half (49%) of the small-business owners who do not offer a retirement savings plan said the economy would have to improve before they would offer a plan, and 80% those business owners considering offering a plan within the next two years said cost is the biggest determining factor.

With 3.3 million small-business customers, Bank of America Merrill Lynch has made it a point of offering low-cost retirement plans to offset these concerns, Irace said. “We are committed to helping small businesses find the right retirement plan, to create loyalty between employee and employer,” he said. Already, since introducing an online, low-cost retirement plan called Merrill Edge Small Business 401(k) in March, the firm has opened more than 250 of these plans, Irace said. 

In addition to this platform, Irace said, the firm offers Advisor Alliance, which provides small businesses affordable recordkeeping and retirement plan administration services from a diverse selection of partners.

Bank of America Merrill Lynch also has more than 1,800 proposals to small businesses, Irace said. “This year, nearly 4,500 Merrill Lynch financial advisers, roughly one-third of our advisers, have delivered at least one retirement plan to a small business,” he said.

Data & Research December 5, 2012

Older Workers Show More Retirement Anxiety

The proportion of all workers expecting to delay their retirement date is 44%, according to the 2012 Mercer Workplace Survey.
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Only 53% believe they will be ready to retire financially, down two percentage points from last year.   

Fifty-nine percent of older workers are considering delaying retirement, up from 55% in 2011, while those younger than age 50 considering delayed retirement remained flat at 37%. Sixty-two percent of those age 50 and older believe they will have to work at least part time in retirement compared to 48% of younger workers.  

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Participants this year are expecting to increase their 401(k) contributions yet again.For all workers, the mean expected contribution is up about 7%, to slightly less than $8,000.For participants age 50 and older, however, the expected increase is 19%, to more than $8,200. The proportion of workers 50 or older expecting to max their 401(k) contribution in the year ahead nearly doubled (to 13%) even as the comparable share of younger workers remained essentially flat (also at 13%).  

Among all workers, the proportion of current income they are targeting to replace in retirement (78%) is six points lower than last year and is only the second time since 2006 that participants’ targeted replacement ratio has dipped below 80%.

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The survey also found a decline to historic norms in the proportion of workers borrowing against or cashing out some or all of their balance, coupled with an increase to an all-time high in the share of participants saving for retirement in vehicles other than their 401(k)s.    

Adviser Use Increases Confidence  

Professional financial adviser use among participants is at an all-time high—36% of workers now use a paid adviser, up five points from last year. Yet the proportion of all participants (both those with and without current access to in-plan advice) who would be willing to pay a fee for advice offered through their plan is down seven points, to 30%.   

Nearly one-fifth (18%) of respondents say they engage in online or in-person advice within their 401(k). Those who do are much more likely to feel they have enough money for retirement (49% versus 35%), expect to live as well or better as when working (40% versus 29%) and believe they will not have to delay retirement (34% versus 44%). 

Regarding other benefits, only 36% of respondents agreed that their health benefits are definitely worth what they pay out of pocket, the lowest level since 2008. Although 75% say that understanding the features and choices in their health plan is very or somewhat easy, this is down from 83% in 2011. 

Online interviews were completed with 1,656 participants between June 6 and June 21. An executive summary of the survey can be downloaded from www.mercer.com/2012-mws-summary. Mercer has also created an infographic derived from the survey that can be viewed at http://mthink.mercer.com/economic-expectations/.

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