Why do some small businesses offer retirement plans?

At any given time, only about half of private sector workers in the United States are covered by an employer-sponsored retirement plan, and few workers save without one. As a result, many households end up with no retirement savings and entirely dependent on Social Security, while others move in and out of coverage throughout their careers and end up with only modest balances in a 401(k) account.1


Numerous studies have shown that offering a retirement plan is closely related to firm size; firms with fewer than 100 employees are much less likely to offer a plan than larger firms. As a result, observers tend to dismiss small firms as a source of future growth in coverage. In fact, though, a meaningful share of small businesses do offer retirement plans. The purpose of this study is to identify the characteristics of sponsoring firms and their employees to determine which small businesses may be more likely to offer a retirement plan in the future. 


Over decades, small firms have cited the same three major factors for not offering a plan:

  • Some firms claim that they’re simply not big enough and don’t feel they’re firmly enough established to offer a plan Indeed, many small firms are new, and it may take a few years before setting up a workplace retirement plan is a real option
  • Their employees would prefer to get their compensation in cash wages, or, if they have to choose among benefits, they would much prefer health insurance to retirement benefits
  • Concern that establishing and maintaining one would be too costly

Read our study for a more in-depth look at these findings. 

1Biggs, Munnell, and Chen (2019).

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