While there were several factors noted that these small firms weighed when considering whether to offer a retirement plan, such as firm size, wages, industry, recruitment impact, an important element became clear that may help financial advisors who serve small businesses. That is, many small businesses do not have an accurate understanding of what services a financial advisor may offer.
A new report from the Center for Retirement Research may be important for advisors who plan to pitch their fiduciary services to small firms.[1] Released in March of 2024, the 2023 Small Business Retirement Survey assesses the beliefs of small business owners regarding retirement benefits and how those beliefs move their decisions to offer, or not, such benefits. The survey was a joint effort between the Employee Benefit Retirement Institute and Greenwald Research. It gathered responses for more than 700 firms comprised of 100 or fewer employees in early 2023. The last major survey addressing small businesses and retirement plan attitudes was conducted by the same groups in 1998. This time, the study included firms of 4 or less employees. Overall, “among all firms sampled, 46 percent offered a retirement plan, while the other 54 percent did not.”[2]
While there were several factors noted that these small firms weighed when considering whether to offer a retirement plan, such as firm size, wages, industry, recruitment impact, an important element became clear that may help financial advisors who serve small businesses. That is, many small businesses do not have an accurate understanding of what services a financial advisor may offer. “Of the small businesses not offering a plan, the reasons they were most likely to consider for not offering a plan were those regarding the costs of administering a plan.” [3] Similarly, a majority of the businesses not offering plans were unaware of tax credits for offering those plans as well as the variety of cost options for offering retirement plans other than IRAs. Small business owners also noted concerns about the administrative burden of running a plan, indicating a lack of knowledge concerning how those burdens can be outsourced.
Advisors may also want to take note of the other barriers the report noted as to why small firms may choose not to offer a retirement plan. One of the main barriers noted in the report by small businesses were concerns about the financial stability of their firm. Concerns about cost and revenue instability have historically been barriers to retirement plan adoption. However, the 2023 report noted that a third concern, employee preference for paychecks over plans, was notably lower than in the past. In addition, small firms did not report concerns about revenue growth but about revenue stability.
Finally, the report shows a split in the demographics of small firms offering retirement plans. Those “higher average salaries, and firms in professional, technical, and scientific services industries are much more likely to offer a retirement plan. Meanwhile, firms in retail sales, wholesale sales, and accommodations (hospitality and food services) are much less likely to offer a plan.”[4] This distinction may indicate a potential area for growth for financial advisors that work with small businesses in a fiduciary or administrative capacity for retirement plans.
Lastly, firms that knew that offering retirement benefits to employees positively impacted employee morale and retention were more likely to offer one. “90 percent said that a competitive advantage for the business in employee recruitment and retention is a reason for offering a plan.”[5] This statistic may mean that financial advisors may want to include statistics about retirement benefits and employee retention in their marketing materials for new clients. While most of the impact on retention that benefits have concerns health care, the fact that 78% of employees report that benefits are a key reason they stay with their employer.[6]
[1] https://crr.bc.edu/small-business-retirement-plans-how-firms-perceive-benefits-costs
[2] https://crr.bc.edu/small-business-retirement-plans-how-firms-perceive-benefits-costs
[4] https://crr.bc.edu/small-business-retirement-plans-how-firms-perceive-benefits-costs
[6] https://unitedinsurance.net/publications/5-critical-statistics-about-benefits-and-employee-retention
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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