Retirement, Small Business

Small Business Employees Lack Financial Confidence

11/22/16 8:00 AM

iStock_000008661655_Small-3-1.jpgLast week we learned that an alarming number of small business owners are ill-prepared for retirement, and a new report from SmartDollar suggests that many of the employees at these firms are in a similar situation. Specifically, more than two-thirds (68 percent) of surveyed U.S. adults who work at companies with fewer than 200 employees said that they are currently living paycheck to paycheck. Among those same respondents, just 15 percent reported that they are optimistic about their ability to retire “on time.” In contrast, 42 percent of surveyed small business employees who said that they do not live paycheck to paycheck reported that they were either “confident” or “very confident” about their retirement prospects.

Unsurprisingly, employee respondents living paycheck to paycheck were also found to be less confident about their short-term finances. For example, more than half of these workers said that they would likely have a difficult time covering a $1,000 emergency expense without having to borrow the funds, compared to just 3 percent for non-paycheck-to-paycheck employees. Further, three out of five financially strapped small business workers said that paying off all of their consumer debt is their most important goal right now but only 29 percent reported confidence that they would be able to do so within the next two years. On the other hand, nearly three-quarters (72 percent) of surveyed workers who said that they never live paycheck to paycheck felt “confident” or “very confident” that they could become debt free within 24 months.

Such money troubles can create a lot of stress for these small business employees, which if carried with them into the workplace can result in reduced productivity, as well as elevated turnover and higher medical expenses (premiums) for employers. One thing that can help improve the overall financial situation for many small business workers is access to a company-sponsored retirement plan. The Employee Benefit Research Institute (EBRI), for instance, calculated that workers earning between $30,000 and $50,000 per year with access to such a plan are 16.4 times more likely to save for retirement. Sadly, though, a lack of retirement assistance for workers is more common at smaller firms, evidenced by a Bureau of Labor Statistics study which found that only around half of Americans employed by companies with fewer than 100 workers have access to a workplace retirement plan, compared to 86 percent at firms with 100 or more employees.

In many cases smaller firms avoid offering such benefits because the cost of doing so is believed to be too great. Fortunately, the are several options that can enable more small businesses to provide their workers with attractive retirement benefits. Multiple employer plans (MEPs), for instance, allow two or more employers to participate in employee benefit plans that are maintained as a single plan. This pooling of plan assets can lead to a significant reduction in the barriers to entry (costs) associated with a high quality defined contribution (DC) plan, and lower administrative burdens and reduced fiduciary responsibilities are possible as well. More information on the advantages of MEPs can be found here, and additional help is available by working with a professional employer organization (PEO).



Sources: SmartDollar, NAPA, Prudential, EBRI

Post author: Charles Couch