Workers at Small Companies Often Without Retirement Plans

These divisions echo other kinds of economic inequality. White families, for instance, have an average of eight times the wealth of Black families and five times the assets of Hispanic families, according to the Federal Reserve. Three-quarters of white Americans own homes, compared to just under half of their Hispanic and 45 percent of their Black fellow citizens, the Census Bureau reports.

Lack of access to employer-provided retirement plans is just another example of this, says John Sabelhaus, a nonresident senior fellow at the Brookings Institution. “The fundamental problem is earnings inequality.”

Some good news

“Covid really highlighted that retirement savings are often people’s only savings, and that they turn to retirement savings to help them weather economic storms,” says Angela Antonelli, executive director of the Georgetown University Center for Retirement Initiatives.

To compete for workers in a tight labor market, even smaller companies are realizing that they have to offer benefits such as retirement savings plans. “The need for these programs has become even clearer to employers,” Antonelli says.

To meet this need, several states are requiring small employers to offer retirement savings programs, a trend that’s widening access to this kind of financial security and which AARP has long supported.

Thirteen states and several cities have developed programs that make it simple for companies to provide retirement savings programs, and at least 17 others are considering it, according to ADP, which provides such plans. Most of those states require businesses above a certain size to offer a retirement program. In those states, employers can either sponsor their own programs or enroll their workers in state-sponsored ones, which are essentially Roth individual retirement accounts.

California, Connecticut, Illinois, Massachusetts, Oregon and Washington already have such programs. Colorado, Maine, Maryland, New Jersey, New Mexico, New York, Vermont and Virginia have approved programs but not yet started them.

Rivera, who is 33, enrolled in CalSavers, which was launched in 2019 and made available through her employer, Triple E Trucking. CalSavers is sponsored by the state of California and uses private providers to keep records and manage investments.

There is some good news. The National Retirement Risk Index, calculated by the Center for Retirement Research at Boston College — which measures the share of American households at risk of seeing their standard of living decline when they retire — fell slightly between 2016 and 2019, from 50 percent to 49 percent.

But that was largely because of stock market gains and rising home prices, only widening the gap between wealthy and lower-income people. And the risk index rose again last year, to 51 percent.

“As I started getting older, it was important to save for my future,” Rivera says. “I do want to be able to have a cushion if anything were to happen, to have something to rely on rather than constantly working.”

Having access to retirement savings “got me thinking of something I would have probably never even considered,” she says. “I only wish I would have started sooner.”

People who have automatic payroll deduction at work are 15 times more likely to save for retirement than if they don’t, says Katie Selenski, executive director of CalSavers. “It’s just human behavior.” She says 68 percent of eligible employees have signed up for the California program. Nearly half are Hispanic and two-thirds are people of color.

The savings can increase the annual amount available in retirement and enable people to delay taking Social Security until they reach full retirement age (67 for people born in 1960 or later), thereby maximizing the monthly Social Security benefit.

Independent research suggests high levels of satisfaction with such solutions among employees and employers alike. Ninety-six percent of workers enrolled in the Illinois program, Secure Choice, said they were satisfied or neutral about it, a Pew Charitable Trusts survey found. In a separate Pew survey, 73 percent of participating businesses in Oregon were satisfied or neutral about the OregonSaves plan.

“Contrary to what people might have thought before — that small employers and/or their workers weren’t interested or didn’t have the ability to save — in fact we see through these state programs that there’s tremendous demand,” says Antonelli. Businesses “really do want to offer their employees the opportunity to save, which makes them more competitive in the labor market.”

But solutions like these require understanding where the problem is, which is why the new information from AARP about who does and does not have the benefit of an employer-provided retirement program is important, Selenski says.

“If we care about how to level the playing field and ensure that certain groups aren’t disproportionately affected,” she says, “we have to get to the bottom of seeing who is left behind and who isn’t.”