An increasing number of small businesses are offering retirement plans to their employees, according to a new report.
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The report noted that increased affordability for small businesses thanks to due to tax credits and the SECURE 2.0 Act legislation that passed in late 2022 lowered the cost of establishing a plan over the same period. Some small business owners also see a retirement plan as a way to limit the costs associated with employee attrition.
Retirement plans grew fastest in the industries that had previously offered them the least. The most growth is occurring at businesses in the hospitality, recreation and agriculture industries, such as restaurants, hotels, salons and farms, which generally hire more hourly workers.
The share of small hospitality businesses with an active plan has tripled since 2019, going from 4% to 12%. The recreation industry rose 147% and the agriculture industry grew 122%. Every industry tracked by Gusto gained ground, but the steepest climbs came from the lowest starting points.
"White-collar sectors like professional services, finance, and information now have shares approaching 45%, but the largest gains were in industries where active plans were rare six years ago," wrote Gusto senior economist Nich Tremper, head of Gusto Insights.
Hourly workers gained the most ground on access to 401(k) plans and used them when they became available. The share of hourly workers with a retirement plan at work rose 79%, from 21% to 38%, while salaried access rose 24%. Counting both access and participation, the share of hourly workers actually saving through work more than doubled, from 7% to 17%.
401(k) savings rates have remained flat among salaried workers, but have increased among hourly workers.
However, there's a major caveat. Despite small business employees' gains in access and participation in retirement plans, they have not increased the amounts they're saving overall. The real savings amounts are actually down since 2019.
There may be multiple reasons for the decline in savings rates, according to the report. "In recent years inflation has caused workers to keep more money from their paychecks in their pockets rather than save it for the future," wrote Tremper. "As costs have increased across the board, workers are spending more money than they expected to in order to maintain the same standard of living, and cutting deferrals to retirement savings can provide immediate cashflow. On the other hand, small business employees could be saving less from their paycheck because they feel relatively less urgency to do so because of the strength of the stock market in recent years. As retirement savers watched the value of their balances increase, they could feel wealthier and therefore become less likely to increase their deferral rates year-to-year."
