Small employers are a big source of employment, accounting for 41 percent of all private-sector wage and salary workers in the United States. However, they are not a big source of retirement plan coverage. And contrary to conventional wisdom, red tape and high costs are not the main reasons why so many small businesses do not offer a retirement plan to their workers - issues like uncertain revenue and employee issues also come into play. If this trend continues, 38 million Americans who work for small employers could face a bleak retirement because of insufficient funds.

In a survey of more than 600 small employers (companies with 100 or fewer full-time workers), uncertain revenue and employee issues (such as a lack of demand by workers) are cited as equally or more important reasons why small businesses do not sponsor a plan. This may explain why, despite repeated public-policy initiatives to boost retirement plan sponsorship among small employers, actual coverage remains low, compared to medium and large-sized firms.

The 1999 Small Employer Retirement Survey (SERS), released by the nonpartisan Employee Benefit Research Institute (EBRI), American Savings Education Council (ASEC), and Mathew Greenwald & Associates (MGA), also shows that small employers lack a certain level of knowledge and understanding about retirement plans. In addition, the survey found a notable difference between the employee characteristics of small companies that offer a retirement plan and those that do not (e.g., age, salary, retention, etc.).

According to the EBRI, 85 percent of workers at large companies (100 or more employees) were offered an employment-based retirement plan and two-thirds actually participated in the plan. At very small employers (less than 25 employees), only 20 percent of the workers were offered a plan and just 15 percent participated.

The SERS, now in its second year, was designed to gauge the views and attitudes of America's small employers (with five to 100 full-time workers) regarding retirement plans and related issues. The survey was conducted within the United States between January 4 and February 28, 1999, through 15-minute telephone interviews with 301 companies with a retirement plan and 301 companies without a retirement plan.

According to EBRI, the major reasons why small employers do not offer a retirement plan are:

• Revenue uncertainty
• Workers are seasonal, part-time, or high-turnover
• Employee preferences for wages and/or other benefits
• Plan costs too much to set up and administer

Key factors that characterize small firms without retirement plans include:

• Company revenue (only 18 percent of small employers without retirement plans reported annual gross revenue of $2 million or more, compared with 48 percent of small employers that do sponsor a retirement plan).
• Younger workers
• Smaller salaries
• Less education
• Employee retention

On the bright side, the potential exists for increased plan sponsorship among small businesses. Fifteen percent of small employers without a retirement plan reported that it is very likely that their business will start one for their employees in the next two years, and 24 percent said it is somewhat likely.

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