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Small Company Workers are Losing the Race to Retirement

By Hal M. Bundrick

NEW YORK (MainStreet) ¿ Working for a small business may reduce your retirement readiness. A newly-released Transamerica Center for Retirement Studies survey finds that the estimated median household retirement savings among Baby Boomers is lower among small company workers ($92,000) compared to large company workers ($113,000). And while 88% of small company workers think company-sponsored retirement plans are an important benefit, only 58% are offered such a plan by their employers.

The study defines a small company as having 10 to 499 employees.

"Small businesses are the cornerstone and growth engine of the U.S. economy," says Catherine Collinson, president of TCRS. "They are represented in all industries and generate a wide range of revenue, earnings, and payroll. Small businesses' offering of retirement benefits can positively affect the retirement outlook of the millions of American workers they employ."

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The lack of such retirement benefits may account for the fact that most small-company workers (59%) plan to work past age 65 -- or don't plan to retire at all. Most (55%) say they plan to continue working after retirement, including 45% who plan to work part-time and 10% full-time. Among those who plan to continue working in retirement, two-thirds (66%) plan to do so because they want or need the income or health benefits.

The majority of small-company workers (56%) would like more information from their employers on how to reach their retirement goals, yet fewer small-company employers (42%) believe this to be the case.

"Starting a dialogue between small company employers and their employees about retirement benefits can help to better align educational offerings with more of the information that workers need to achieve their retirement goals," says Collinson.

According to the survey, 72% of small companies offer a 401(k) plan or a similar employee-funded plan (such as a SEP or SIMPLE), including 71% of micro companies (10 to 99 employees) and 89% of small non-micro companies (100 to 499 employees), compared to 95% of large companies (500 or more employees).

"Much of the public policy discussion around retirement security has focused on encouraging more small employers to offer a plan," says Collinson. "However, it is critical to note that plan sponsorship is not synonymous with plan coverage."

The study identifies that gap in plan coverage: part-time workers. At small companies, only 36% of part-time workers are offered a 401(k) or similar plan, compared to 68% of full-time workers. This coverage gap also persists among large companies in which 90% of full-time workers are offered a plan compared to only 51% of part-time workers.

"Plan sponsorship rates are already relatively high with room to grow," says Collinson. "A critical component of the plan coverage equation is encouraging employers to extend eligibility to part-time workers in retirement plans."

Among the 28% of small companies that do not offer a retirement plan, less than one-quarter (22%) said that they are likely to offer one in the next two years. However, nearly one-third (32%) indicated that they would be likely to consider joining a multiple employer plan offered through a vendor who handles many of the fiduciary and administrative duties at a reasonable cost.

--Written by Hal M. Bundrick for MainStreet

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