May 4, 2023
Two-thirds of small businesses without a retirement plan say they are ‘highly likely’ to offer one, but only 49% have taken steps
LOS ANGELES, MAY 4, 2023 — While most Americans saving for retirement do so through their employer’s retirement plan offering, small businesses are much less likely than larger companies to offer a plan. Only 28% of businesses with less than 10 employees offer retirement plans and only 51% of businesses with 10-24 employees offer them.1 New research from Capital Group, one of the world’s largest and most experienced investment managers and a leading provider of retirement solutions for small businesses, found that many business owners may not be offering a plan due to misperceptions around cost and company size requirements.
“Offering a retirement plan to one’s employees can be a critical asset for a business owner who wants to retain and attract new talent, but concerns about cost and a lack of sufficient guidance are holding many of them back,” said Renee Grimm, Senior Vice President, Retirement Plans, Capital Group. “With the passing of the SECURE 2.02 Act earlier this year, now may be a great time for small business owners to set up a retirement plan. A financial advisor can guide business owners on how to maximize the full benefits of offering a plan, including important tax credits for themselves.”
In Capital Group’s survey of over 600 small business owners and their employees, both business owners and employees cited inflation as the biggest factor impacting their finances in the last 3-6 months, closely followed by the rising cost of fuel, the Covid-19 pandemic, and healthcare costs. The survey revealed that business owners offering retirement plans were more aware and sympathetic to their employees’ financial situations:
The survey uncovered that business owners who do not offer a retirement plan may be unaware of their employees’ strong desire to have one, with more than three-quarters (78%) of employees expressing interest in participating in a plan with a company match feature. Additionally:
“Too many people in this country are not saving enough for retirement, including many who work for the very small businesses which are the engine of our economy. The passing of the SECURE 2.0 Act will remove the last barriers for many, enabling employers and the retirement industry to come together to help more Americans save for retirement,” commented Ralph Haberli, Head of Institutional Retirement at Capital Group. “Additionally, while 12 states have enacted legislation requiring small businesses to offer retirement plans, there appears to still be low awareness of the range of affordable solutions available, including SEP and SIMPLE IRAs. A financial advisor can be a valuable partner to guide business owners through the steps and implications of setting up the plan that is right for them.”
Capital Group’s survey shows small business owners should:
Capital Group partnered with Escalent, a data analytics and advisory firm, to conduct an online survey of 621 small business owners and employees between September–December 2022. The groups included a mix of small business owners and employees aged 21 years and older. The small business owners surveyed included both those that do and do not currently offer an employee retirement plan.
1Data as of December 2022 from SCORE, a U.S. Small Business Administration resource partner.
2 Capital Group: A closer look at SECURE 2.0 Act startup tax credits
About Capital Group
Capital Group, home of American Funds, has been singularly focused on delivering superior results for long-term investors using high-conviction portfolios, rigorous research, and individual accountability since 1931.
As of March 31, 2023, Capital Group manages more than $2.3 trillion in equity and fixed-income assets for millions of individuals and institutional investors around the world. Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed-income investment professionals provide fixed-income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.
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