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.

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%).

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.