In Practice
Cost is Barrier to Micro-Businesses Offering Retirement Plans
Nearly two-thirds (62%) of micro-business owners say the cost of administering and contributing to a retirement plan is the biggest hurdle to offering them.
Reported by PLANADVISER Staff
A survey of more than 3,000 employers with 10 or fewer employees found that about 80% of micro-businesses do not offer retirement plans to their owners or retirees, and only 5% of micro-businesses say they plan to offer a retirement plan in the next year, according to the survey by the National Association for the Self-Employed (NASE).
Of the respondents that do offer retirement plans, the most common plan type is a simplified employee pension plan (SEP). Although business owners said that finding information on retirement options is easy, only 40% are familiar with and understand the options available.
Further, more than half of the micro-business owners that offer retirement plans handle the administrative legwork themselves. Most of the plans (63.4%) cover only the owner, but nearly one in three owners excludes themselves from the retirement coverage, opting instead to provide employee-only coverage, NASE said.
More the one third of micro-business owners are not saving for retirement at all, and one in five owners of these businesses are not sure when they will have enough to retire. More than 90% of those with a retirement plan through their business are presently saving for their own retirement, versus only 57% of those without a retirement savings plan through their business, the survey found. Nearly 13% have no savings at all and 26% have less than $50,000 saved. However, nearly 29% believe they will need at least $1 million in savings before they can retire.
Over three-quarters of micro-business owners are relying on the federal government as their primary source for financing retirement, with Social Security being the most frequently mentioned income source.