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.