Archives for April 2012

California Lags Much of the U.S. in 401(k) Plans for Small Employers

Californians lead the nation in many desirable statistics. But we’re not doing such a hot job of setting up 401(k) or other retirement savings plans at small employers. More than 20 states had higher rates of plan sponsorship than California in 2009, according to a U.S. Government Accountability Office (GAO) analysis in Private Pensions: Better Agency Coordination Could Help Small Employers Address Challenges to Plan Sponsorship, (March 2012).

California vs. the Nation

California’s small employers fell into the next-to-lowest level of five levels of retirement savings plan sponsorship across the U.S. Only 13% of our state’s small employers offered plans. Small employers were defined as companies with 100 or fewer employees.

California fell below the national small employer average of 13.8%. More than 20 states did better than California, as you can see in this GAO report’s map below showing “Small Employer Plan Sponsorship by State in 2009.” In particular, Northeastern and Midwestern states did much better than us. The report didn’t speculate on reasons for this.

Smart Investor’s Take on California’s Small-Business Plan Lag

Smart Investor thinks there’s a silver lining to California’s 13% rate because it reflects our state’s creativity in generating new business ideas. We have a relatively high rate of start-up businesses. In the early years, most of a startup’s earnings get plowed back into the business to help it grow.

Also, until the recent advent of multiple-employer retirement plans, which combine many small company retirement plans so they can benefit from economies of scale, the costs for start-up or very small retirement plans were very high.

Small Employers Fear Risks, Choices, Time Commitment

The GAO found that some small employers shun retirement plans because of their complexities, risks, and the time required to sort through all of the options.

If you share their worries, Smart Investor would be happy to help you.

Looking for a registered investment advisor serving Sacramento, Roseville, and Stockton, CA. Smart Investor serves all three cities from our base in Rocklin, CA. Contact us at 916-435-2100.

Retirement Plan Calculations Can Boost Savings and Retirement Comfort

Saving is essential for your plan participants’ comfortable retirement. But how can you get them to boost their savings to reach their retirement goals? Smart Investor suggests you encourage them to calculate their retirement needs. Individuals who perform calculations tend to aim for higher savings, according to “The 2012 Retirement Confidence Survey: Job Insecurity, Debt Weigh on Retirement Confidence, Savings,” Issue Brief (March 2012) published by the Employee Benefit Research Institute (EBRI).

Retirement Savings: Off-the-cuff Estimates vs. Systematic Calculations

Many individuals don’t take a systematic approach to figuring how much they’ll need for retirement. In fact, 42% of workers guessed at the numbers, according to EBRI research. EBRI figures this is why so many workers underestimate their retirement needs.

In contrast, workers who’ve run the numbers have higher savings goals. For example, according to EBRI, “Twenty-two percent of workers who have done a calculation, compared with 9 percent of those who have not, estimate they need to accumulate at least $1 million for retirement.”This is a significant difference.

Encourage your employees to calculate their retirement needs. You can do this by reminding them of the online retirement calculators available at no cost as part of your 401(k) plan.

If your plan doesn’t offer a retirement calculator, perhaps it’s time to reconsider your providers. Meanwhile, you can point employees to free calculators available to the general public. One example is T. Rowe Price’s Retirement Income Calculator.

What About Your Retirement?

If you’re too busy to calculate your retirement income needs, you’re not alone. That’s why Smart Investor offers retirement planning to individuals in addition to advising corporate defined contribution plans.

Looking for a registered investment advisor serving Sacramento, Roseville, and Stockton, CA? Smart Investor serves all three cities from our base in Rocklin, CA. Contact us at 916-435-2100.