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One-Third of Workers Expect to Search for a New Job in the Next 12 Months
BOSTON, May 3, 2007 - A new Fidelity study on the small business market reveals that half (49%) of employees who have a retirement plan say they would not move to a company that does not offer one. Fidelity surveyed small business employers and employees and found they differ in their views on whether retirement plans play a critical role in retaining current employees or attracting new ones.
A total of 68 percent of employees say a retirement plan is critical or very important for businesses to attract and retain employees. Yet, only 36 percent of employers perceive such plans as critical or very important to staff retention or attracting new hires.
"Given the highly competitive job market today and the fact that many small business workers told us they are planning to look for a new job in the coming year, small business owners simply can't afford not to offer a retirement plan," said Edmund F. Murphy III, executive vice president, Fidelity Employer Services Company. "Unfortunately, many owners without a retirement plan have a misperception that offering one is too expensive, yet we know it's generally one of the lowest operating costs and offers some of the biggest benefits."
Study Finds Retirement Plans Substantially Lower Than Other Operating Expenses
In the employer component of the study, Fidelity surveyed a mix of nearly 1,000 companies with five to 100 employees that both do and do not offer a retirement plan, to quantify the typical small business administrative and operating expenses.
The study calculated operating costs by measuring 12 expense categories in the areas of operations, benefits, insurance, banking and investments, sales and marketing, and retirement plans, where applicable.
The research found that payroll (34%) and day-to-day facility expenses such as maintenance and utilities (13%) accounted for the largest portion of small business monthly operating expenses. Health insurance, payroll costs and business insurance were cited by employers as the top three rising expenses that could pose potential threats to the future viability of their business.
Employers cite the cost of administering a retirement plan as substantially lower than other business operating expenses, ranking it seventh out of the 12 key measures. The average monthly cost reported for administering a plan was just over 1 percent. However, the top reasons why small businesses report not having a plan is because they are too expensive (23%) or the company is not profitable enough yet (23%) to offer one.
Potential Tax Benefits for Small Businesses
Small business owners may not realize that they may be eligible to claim a tax credit for some of the costs to set up a retirement plan. This credit was made permanent through the recently approved pension legislation. The credit may be used to offset up to 50 percent of a plan's start-up costs, up to $500 annually for each of the plan's first three years. Qualified costs include those necessary to establish, administer or educate employees about the new plan.
Employer contributions to plans are also usually deductible up to certain limits which vary depending on the contribution type and other factors.1
"There are plenty of affordable plan options and even tax benefits available to small business owners today, but too few employers appear to be taking full advantage of them," said Murphy.
Retirement Plan Trends
Industry research indicates the share of small businesses currently offering a defined contribution plan is as low as 15 percent.2 This number does not include companies that offer other retirement plan types such as SIMPLE IRAs or self-employed plans (SEP).
Fidelity's Small Business Study of employers showed that finance and technical services companies had the greatest adoption rates, while retail and construction businesses were at the lower end. Regardless of the industry they represent, nearly all employers agree that retirement plans have allowed them to achieve important business objectives. These include helping employees, and business owners themselves, save for retirement, and enabling employers to attract and retain qualified candidates.
"Fidelity continues to build retirement solutions to benefit small business employers and employees alike," said Murphy. "Our plans are easy for employers to administer and provide employees with the retirement planning tools they need to better understand where they are in the retirement planning process and help them achieve their goals."
About the Small Business Study
Fidelity Investments surveyed a national sample of 992 small business owners and operators with five to 100 employees to determine where retirement plans rank among other costs of doing business. For comparative purposes, Fidelity also surveyed a national sample of 338 Americans age 18 or older working at businesses with five to100 employees. Both surveys were conducted online between March 28 and April 6, 2007, by Synovate, an independent research firm.
About Fidelity Employer Services Company
Fidelity Employer Services Company (FESCo) is a division of Fidelity Investments. FESCo provides defined contribution and defined benefit retirement services, employer benefits and human resources administration, and payroll services to more than 20 million participants in the United States as of March 31, 2007.
About Fidelity Investments
Fidelity Investments is one of the world's largest providers of financial services, with custodied assets of $3.0 trillion, including managed assets of more than $1.4 trillion as of March 31, 2007. Fidelity offers investment management, retirement planning, brokerage, and human resources and benefits outsourcing services to more than 23 million individuals and institutions as well as through 5,500 financial intermediary firms. The firm is the largest mutual fund company in the United States, the No. 1 provider of workplace retirement savings plans, one of the largest mutual fund supermarkets and a leading online brokerage firm. For more information about Fidelity Investments, visit www.fidelity.com.
1Note: A deduction for costs cannot be made in addition to claiming the tax credit.
22007 Spectrem Group Retirement Market Insights Report. Study measured defined contribution plan adoption among small businesses with five to 99 employees.
Fidelity Investments Institutional Services Company, Inc.,
82 Devonshire Street, Boston, MA 02109 |
