Can Professional Service Providers Help Encourage Small Businesses to Offer Retirement Plans?

The retirement plan coverage gap, which undermines the financial security of millions of U.S. workers, is driven by a lack of coverage among small employers. Despite various efforts to develop affordable and simple plans for small businesses, many small firms still overestimate the cost and administrative burden required to offer a plan, perceiving plan adoption as out of reach.

This study explores whether professionals – such as accountants, lawyers, financial advisors, etc. – who provide services to small firms could bridge the information gap and help encourage more small firms to offer retirement plans. We surveyed 506 small business professional service providers, identifying misperceptions among these providers that could hinder plan adoption and strategies to encourage adoption. The providers must have at least five small business clients and be involved in helping small employers set up retirement plans.

Key insights from the survey:

• Misperceptions about cost and administrative burden are widespread. Many accountants, bankers, and lawyers substantially overestimate both the time and cost required to offer a retirement plan, potentially reinforcing misperceptions observed among small business owners, which could hinder plan adoption.
• Knowledge is just a first step. Hands-on guidance and strategic framing matter.
  Providers who actively guide clients through the setup process and position retirement plans as a recruitment and retention tool are significantly more likely to have a higher share of clients offering plans.
• Service providers with higher plan adoption rates often discuss certain plan types. Discussing Pooled Employer Plan (PEPs), Multiple Employer Plan (MEPs), solo 401(k)s, and traditional 401(k)s is positively associated with plan adoption, while an emphasis on Simplified Employee Pension Individual Retirement Arrangements (SEP IRAs) is associated with lower coverage –highlighting the importance of steering employers toward appropriate plan options.

The results suggest that improving knowledge and adeptly framing the benefits of retirement plans, as well as providing more hands-on guidance, could boost the share of small firms offering plans.