Key facts
- Only about 49% of firms with fewer than 50 employees offer retirement plans, compared to over 90% of larger employers.
- Small employers often overestimate the cost of offering a retirement plan, with many believing it exceeds $10,000 annually.
- A tax credit of up to $5,000 per year for three years is available to offset the costs of starting a plan, though many employers are unaware of it.
- State-sponsored auto-IRA programs are gaining traction, with 15 states having such programs by mid-2026.
- Federal legislation, including SECURE 1.0 and SECURE 2.0, has introduced measures like Pooled Employer Plans and starter 401(k)s to simplify plan offerings.
A significant portion of U.S. private-sector workers lack access to employer-sponsored retirement plans, a gap primarily attributed to small businesses' reluctance to offer such benefits. Research from the Center for Retirement Research at Boston College highlights that while over 90% of larger employers provide retirement plans, only 49% of firms with fewer than 50 employees do so. This disparity means roughly one-third of households are left entirely dependent on Social Security in retirement.
Small employers frequently cite concerns about firm size, financial stability, the costs and administrative complexity of plans, and employee preferences for higher wages over benefits as reasons for not offering retirement options. However, the research suggests these fears are often based on misperceptions. Many 401(k) providers offer plans with annual employer costs below $3,000 for firms with up to 25 employees, yet a majority of small businesses believe costs exceed $10,000 annually.
Furthermore, many small employers are unaware of available tax credits, which can reduce the cost of starting a plan by up to $5,000 per year for three years. The research indicates that approximately 80% of employers would find offering a plan more attractive with such a credit. Firms that are larger, more financially stable, and have been in operation for at least 10 years are more likely to offer plans, as are those with higher average employee salaries.
In response to the federal inaction, several states have implemented mandatory auto-IRA programs, with 15 states expected to have them operational by mid-2026, accumulating over $3 billion in assets. These state programs are seen as complementary to private plans, with many employers indicating they would continue offering their own plans even with a state mandate. Federal legislation, including the SECURE 1.0 and SECURE 2.0 Acts, has also sought to simplify plan offerings through measures like Pooled Employer Plans and expanded tax credits.
Fintech companies are also contributing by offering automated, low-cost digital retirement platforms that can streamline plan setup, enrollment, and compliance. However, researchers caution that these technological solutions alone may not close the coverage gap, as many small employers remain unaware of available options and may lack the necessary payroll systems.