Small business owners, and their employees, may not be saving enough for retirement.
A study released recently by the Small Business Administration's (SBA) Office of Advocacy shows that retirement account ownership, contributions and participation rates are low for all business owners, but is especially true for owners of businesses with fewer than 10 employees. A related study also found that almost 72 percent of employers in small firms do not offer retirement plans to workers.
In the working paper of business owners and retirement, Saving for Retirement: A Look at Small Business Owners, the study found that there are several key factors that seem to determine the probability of a small business owner owning and participating in retirement plans.
The most significant factor affecting IRA account and 401(k) ownership is overall asset accumulation, including homeownership and participation in other retirement savings accounts. For business owners who own a home, the probability of owning an IRA increases from 35.6 to 63 percent, and owning an IRA plan increases the probability of a business owner participating in a 401(k) plan from 17.4 to 50.3 percent.
A business owner's socio-demographic characteristics also influenced his or her ownership of an IRA account—business owners who were older, non-minority, highly educated and U.S. citizens were more likely to own an IRA.
Owners of larger, older and profitable businesses, and those who own more than one business, were also more likely to own and contribute to an IRA. While the size of a business does not affect the probability of the owner having an IRA account, the study did find that firms with less than 10 employees reduced the likelihood of an owner participating in a 401(k) plan.
Additionally, the study found women business owners to be more likely to own an IRA account than their male counterparts, while male business owners were more likely than women to participate in a 401(k) plan.
The study also found that sole proprietors or owners of home-based businesses are less likely to own IRAs and participate in 401(k) plans, presumably as a result of the success of the business and the amount of assets available for savings.
Business owners living in metropolitan areas were more likely to own IRAs than those living in non-metropolitan areas, which the study suggests may be due to the availability of information and financial services, and because of the increased likelihood of metropolitan-based businesses being more successful because of larger markets for goods and services.
In the working paper, Small Business Retirement Plan Availability and Worker Participation, the SBA study indicates that nearly half of the workforce, about 58 million workers, does not have access to any type of retirement plan through their employer. Twenty million workers do not participate in the retirement plans they are offered through their place of work. Of workers in small firms, about 72 percent are not offered retirement plans through their employers, and of the small companies that do have plans, 9 percent of workers reported that they do not participate. Just 19.5 percent of employees at small companies reported participating in a retirement plan.
To learn more about the studies, download the Small Business Retirement Plan Availability and Worker Participation or the Saving for Retirement: A Look at Small Business Owners papers.
