4 in 10 Eligible Small Business Employees Not Part of Company Retirement Plan

The assets in small business retirement plans grew to an average of $3.9 million in 2024, up from $2.9 million in 2022, according to Vanguard’s “How America Saves 2025: Small Business Edition,” published in October.

Vanguard’s study leveraged data from Vanguard Retirement Plan Access, the company’s service for retirement plans with less than $50 million in assets. Data were pulled from 21,261 plan sponsors, with plan assets ranging from $2 million to $50 million at the end of 2024.

While small business retirement plan assets went up, only 59% of small business employees who were eligible enrolled in their employer’s defined contribution plan in 2024. This is considerably less than the 82% of all private sector employees—irrespective of size—who are enrolled, per Vanguard’s main “How America Saves 2025” study, released in June. According to the U.S. Small Business Administration, 99.9% of businesses in the U.S. are small businesses, employing nearly half of all private sector workers.

“Whether you’re working for a small firm or a larger firm, having access to an employer-sponsored retirement plan is key to … financially preparing for retirement,” says Jeff Clark, Vanguard’s head of retirement research and the author of both reports.

Many small businesses may not have the resources or the bandwidth to benchmark their retirement plans against their peers—which is what the research aims to provide, Clark says.

Accumulating Assets

Vanguard found that in 2024, 22% of small business plans allowed employees to make contributions immediately after joining their employer, a figure which has remained consistent over the past several years. Smaller companies were more likely than larger companies to require a minimum amount of time with the organization before new employees can contribute, while 76% of larger plans allowed for immediate eligibility. The report suggested that plan sponsors allowing immediate eligibility is a best practice. 

As of year-end 2024, 24% of small business plans surveyed that permitted employee-elective deferrals had adopted automatic enrollment, compared with 61% of large business plans. Among smaller plans with automatic enrollment, 57% also automatically enrolled employees into an annual escalation feature, compared with 69% of larger plans that did so.

Small plan participation was reported to be significantly higher in those plans with automatic enrollment (81%) than those with voluntary participation (52%). Participants working in architecture and engineering services had the highest rate of plan participation (80%) among all sectors, while those in transportation and warehousing had the lowest (45%).

The most prominent difference between smaller and larger employers’ plan metrics can be seen in their participation rates, Clark says, which he largely attributes to fewer plans from small businesses offering automatic enrollment.

“While it’s encouraging to see more adoption [of automatic enrollment] over the last few years, [smaller plans] still lag behind larger plans in offering [it],” says Clark. “We know auto-enrollment plays a huge role in helping keep participation rates high.”

Vanguard’s report also found that small business employees are matching their counterparts from large businesses in deferral rates, at an average of 7.7% of their income. The median deferral rate for small business plan participants was 5.8%, and employees in industries such as technology and legal services saw higher rates, at 8.1% and 8.3%, respectively.

As of 2024, 40% of small company plans enrolled new hires at a deferral rate of at least 4%, a rate trailing larger plans, 61% of which default at a rate of at least 4%. The most common default deferral rate among small business plans was 3%.

But according to Clark, there are still areas in which small business participants’ savings are on par with those in large companies’ plans.

“When you think about the similarities [between large and small plans], the savings rates are quite similar,” says Clark. “Fourteen percent of [both groups of plan] participants reach the [IRS] 402(g) limit, and about one-quarter [of both groups] defer at least 10% from their paycheck.”

IRS Section 402(g) limits the amount of retirement plan elective deferrals a participant may exclude each year. The 402(g) limit for the 2026 calendar year will be $24,500.

Accessing Assets

Clark notes a difference, however, in account balances. While the average small-business participant balance hovers at almost $80,000, the average balance for participants in large business plans is nearly $150,000.

“We know from a demographic perspective that the median tenure for employees with a small business is much lower than those in a larger plan, and you’re also dealing with some plans coming in strictly as start-ups,” Clark explains. “So [small plans] are essentially starting from ground zero.”

Clark says he was encouraged to find that small plans’ loan and withdrawal activity tends to be lower than that in larger plans. Of large plan participants, 13% had an outstanding loan, compared with only 6% of small plan participants.

The report noted that higher loan availability and usage in larger plans may be a result of larger plans having higher balances, as well as “more streamlined administrative processes to initiate loans.”

Meanwhile, 94% of large business plans offered hardship withdrawals, and 4.8% of participants took them. In comparison, 87% of small employer plans offered them, and only 2% of participants used them.

“Just as we’re seeing with larger plans, it’s important to note [small plans’] continual progress,” Clark says. “This is, in turn, leading to improved participant outcomes and, overall, increasing the retirement readiness of American workers.”