Millions of U.S. private sector workers still lack access to a workplace retirement savings plan, but one reason for the coverage gap may not be quite so bad as is commonly thought, according to a new issue brief from the Boston College Center for Retirement Research.
Only about half of U.S. small employers—those with fewer than 50 employees—offer a retirement plan, compared with nearly all (98%) of large employers with at least 500 workers, according to the Department of Labor’s 2024 National Compensation Survey. Meanwhile, last year, 97.5% of private sector firms had fewer than 100 employees, while only 0.5% employed at least 500, U.S. Bureau of Labor Statistics data showed.
Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.
Small employers have named as their top reasons for not offering a plan: firm size and stability; perceived costs and complexity of retirement plans; and employee preferences, the CRR stated in its brief. But many hurdles reflect “misperceptions,” rather than “insurmountable economic realities,” according to the CRR, with small employers overestimating the financial and administrative burdens associated with offering plans and lacking recognition of the usefulness of plans for both recruitment and retention. Education from reputable service providers may be one answer to the problem, the CRR proposed.
Firm Size, Stability
The CRR’s report stated that many small businesses, especially when they are new, operate within “narrow margins” and with “volatile revenues.” Owners can often view retirement benefits as obligations difficult to maintain during periods of weak cash flow.
Firm size and stability concerns were more prevalent among the smallest firms. Most (78%) employers with four or fewer employees cited revenue and size as major reasons for not offering a plan, compared with 38% of employers with 50 to 100 workers, according to the CRR’s 2023 Small Employer Retirement Survey. However, some firms may be overestimating their costs, the CRR’s brief suggested.
While only half of small businesses that offer a plan launched it within their first five years in operation, by their 10th year in business, the figure jumps to 87%, the report found.
“This pattern is likely because, as firms mature and grow, they are more likely to formalize compensation and benefit structures,” the report stated. “A business that initially operates informally may eventually adopt payroll systems, health insurance and retirement plans as it expands.”
Cost and Complexity
More than half of small firm respondents to the 2023 survey said they believed providing a retirement plan would cost more than $10,000 annually, and nearly 30% thought doing so would cost double that amount. However, several 401(k) providers offered options with annual employer costs of less than $2,000 for a firm with five employees and less than $3,000 for a firm with 25 employees, the CRR reported in its new brief.
Not only did small firms overestimate the cost of offering a plan, but most—particularly those with fewer than 50 workers (between 77% and 85%)—were not aware they could claim a tax credit of up to $5,000 for three years to help offset the costs of starting a plan. The credit was established by the Setting Every Community Up for Retirement Act of 2019 and expanded by the SECURE 2.0 Act of 2022 to cover 100% of startup costs for firms with fewer than 50 employees.
About 80% of employer respondents to the 2023 survey said receiving such a credit would make offering a plan more attractive.
Employee Preferences, Workplace Characteristics
Small employers frequently report that workers prefer higher wages to retirement benefits—but the perception reflects both workforce demographics and employer assumptions, the brief stated.
According to the CRR, small firms tend to employ lower-wage, younger, part-time or seasonal workers at more frequent rates than large firms. Such employees may prioritize more immediate consumption needs over long-term savings. In addition, participation in voluntary plans tends to be lower among workers with limited earnings, which could reinforce employer opinions that employees lack interest in them, the CRR contended in its brief.
At the same time, studies have shown workers are much more likely to save for retirement if they are automatically enrolled in a plan. Research published by the Investment Company Institute in March found the use of automatic enrollment growing and overall plan costs declining over the past decade.
The ICI report, which analyzed data for more than 53,000 large, private sector plans through the end of 2023, found more than half of plans with at least $50 million in assets in 2023 reported using automatic enrollment, and the share rose to more than 60% of plans with assets exceeding $1 billion.
According to Vanguard’s 2026 “How America Saves” report, published in June, defined contribution plan participation increased to 86% from 65% over the past 25 years, reflecting the widespread adoption of automatic enrollment.
In addition, the average total cost of a 401(k) plan fell to 0.74% of assets in 2023, down from 1.02% in 2009, according to the ICI study. According to the firm, this reflected increased competition among providers and the increased use of lower-cost investment products.
Beyond the characteristics of a business and its employees, one of the “strongest predictors of plan sponsorship” is whether employers believe retirement benefits help attract and retain workers, the CRR report stated. An employer that sees retirement plans merely as additional costs may be less likely to adopt them, while employers who view plans as “investments in workforce stability” may be more likely to adopt.
The Role of Education
Employers can educate their workforce about the benefits of retirement plan participation, but employers may need to receive education themselves, specifically about the benefits of offering the plans, the CRR brief suggested.
The CRR study also suggested that small employers leverage professional service providers, such as accountants, advisers, payroll providers, lawyers and bankers—many of whom they rely on when making financial and operational decisions—to potentially help overcome barriers to adoption.
Some providers have high rates of plan sponsorship among their clients due to their greater knowledge of the costs and features of a retirement plan; a tendency to frame plans as recruitment and retention tools; an emphasis on recommending some form of a 401(k) plan; and willingness to provide hands-on support, according to the CRR’s 2025 Small Business Provider Survey, published in May.
About one-third of service providers overestimated the time it would take to provide a retirement plan for 25 employees, and 43% overestimated the time it would take to provide one for five, according to the CRR, which advised small businesses to consider multiple options to find the best and most reliable fit.
While there has been progress in providing coverage to more workers via state-facilitated retirement savings programs and pooled employer plans, among other avenues that have that lowered the barrier to entry, the CRR’s research suggested that expanding coverage will require much more than new products.
