Big Ideas for Small Business Retirement Plans

By Martha M. Hamilton
Sunday, July 1, 2007

Jeanette Howarth would love to offer better benefits to employees who work for Howarth Excavating and wishes more employees would participate in her company's retirement plan.

She's run the Michigan small business with her husband, Richard, for 28 years. At one point they offered both health-care and retirement coverage to their tiny staff. But as the cost of health care escalated and times got tougher, they dropped health-care coverage. The retirement plan survives, but participation -- even by the owners -- has been minimal.

"The construction industry is fraught with a lot of overhead, especially with Michigan being so depressed right now," said Howarth, whose company is headquartered in Newago, about 45 miles north of Grand Rapids. "So many people are moving out of Michigan and losing jobs that it's quite scary."

Although Howarth is 50 and her husband is 54, their retirement savings "are pretty meager," she said. Any extra money they make goes right back into the business.

The Howarths face the same obstacles as hundreds of thousands of other small-business owners who often work flat out just to keep the business operating. They don't have accountants, lawyers, tax consultants or human resources offices to help sort out complex benefits rules, and their earnings are often unpredictable. That retirement planning takes a back seat is not surprising.

Larger companies with 100 or more workers have 65 percent participation in retirement plans. But for businesses like the Howarths', with fewer than 25 employees, the rate drops to 25 percent. The Howarths employ five people, including themselves.

A recent survey by the National Association for the Self-Employed found that the biggest barrier to a business-based retirement plan was that the business owners couldn't afford to administer or contribute to one. And small businesses are the fastest growing employment sector in the economy.

Okay, so you don't run a small business or work for one. Why should you care?

Well, for one thing, it may have a bearing on the future of someone you love -- say, a brother or a sister or a son or daughter. In my case, it's my stepson, Mark, who pastors a small church and works for a small business, neither of which provides retirement coverage.

Even if you don't have a personal stake, you may end up paying higher taxes to provide services to retirees who don't have enough to live on. A huge number of workers -- nearly half of all private-sector employees -- either don't have or don't participate in retirement plans where they work.

One group that's been thinking about ways to help ensure a financially secure retirement for a larger number of people is the Conversation on Coverage, a Pension Rights Center initiative launched in 2001 by 75 retirement experts and backed by organizations including the Ford Foundation, the Annie E. Casey Foundation, the Atlantic Philanthropies, AARP, insurance and mutual fund companies, several unions and the U.S. Chamber of Commerce.

Among the group's recommendations released earlier this year were strategies to make it easier for small businesses to cover employees. It sounded good, but how would the ideas actually work in the real world?

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