Small-business owners in the U.S. have more faith in financial services firms than in the public sector when it comes to administering retirement savings programs, a survey released Monday by the SPARK Institute found.
The survey conducted by Cerulli Associates asked 400 small employers to rank their preferences for administering retirement plans, including third parties, local or state governments, associations, and large financial services firms. While 89% of respondents indicated a high level of trust in retirement plan providers, only 53% trusted governments.
Half of the employers offered retirement plans to employees and all but 13% of them have fewer than 50 employees. A key factor for small businesses surveyed was cost. Less than one-fourth of them said they were very likely to join a plan sponsored by a third party.
Cerulli also asked employers and other retirement industry professionals about state-run retirement programs for private-sector workers and multiple-employer plans known as MEPs. With roughly half of small employers not offering retirement plans, the approaches "represent a rare growth opportunity in the mature U.S. record keeping and asset management industries," the report summarized.
Currently, the MEP market is $211 billion with modest inflows, and taking over small plans presents the most immediate opportunity, the report said. MEPs can provide simplified administration and lower costs, but they require employers to take on the fiduciary duty to select and monitor the plan.
State-mandated programs "would likely be more effective" than voluntary programs, but they would also meet more resistance from small employers, the survey found.
"State-run programs, MEPs and individual plans all have appealing qualities to employers at different stages of their growth," said Timothy Rouse, SPARK Institute executive director, in a statement. "Our findings show that the proposed coverage solutions are not mutually exclusive."
The SPARK Institute represents retirement plan service providers and investment managers whose members serve 100 million participants in 401(k) and other defined contribution plans.