Currently, 46 percent of full-time employees at small private establishments, with 100 or fewer workers, are participating in an employment-based retirement plan, according to the 2000 Small Employer Retirement Survey (SERS).

The survey explored three main areas of retirement plans: availability, terms of condition and motivation behind each plan. It presented reasons why many small firms are making the decision not to offer a plan. But what about those distributors that are offering plans?

A common plan that distributors offer is a 401(k) retirement plan. A 401(k) plan is a retirement savings plan that is funded by employee contributions and often matching contributions from the employer. The major attraction of these plans is that the contributions are taken from pre-tax salary, and the funds grow tax-free until withdrawn. Also, the plans — to some extent — are self-directed, and they are portable.

401(k) plans are more likely to be offered by companies with more than 20 employees and by companies with higher revenue, says SERS.

According to the survey, employers that sponsor retirement plans tend to be distinctly different from small employers without plans. Companies not offering plans tend to have lower revenue and employees who are younger, who earn lower salaries, have less formal education and remain with the company for less time.

Distributors are motivated by a number of reasons to offer retirement packages to their employees, in many cases there are direct benefits to the employer sponsoring the plan.

As of March 1 this year, Central Janitorial Supply LLC, Covington, Ky., now offers its 13 employees a 401(k) plan, according to Patricia Miles, secretary/treasurer and one-third owner of the company.

Since Central Janitorial’s employees are mostly family members, offering a retirement plan is a clear benefit for the employers. “It is something for our own benefit for our own family,” says Miles. “We’ve all been working here for a long time with nothing more than social security to retire on.”

Miles also explains that the amount that an employer pays is pre-tax, thus creating larger savings for the company.

However, they are not matching any employee contributions for this first year. “Our start-up fees were $4,000 and that was quite a big amount, so this first year we have zero percent match,” says Miles.

“We’ll look at the year-end figures in December and in January or February decide on match percentages,” says Miles.

The plan his company offers allows the employer to pay out up to 6 percent and allows employees to contribute a maximum of 15 percent annually.

Every year Central Janitorial has the option to change the amount they match. They would like to try and add 1 percent each year, she explained.

Money isn’t the only reason distributors offer a plan. Most employers are interested in the welfare of employees.

“A lot of other companies have so many different retirement plans to offer and we wanted something, too,” says Miles. Central Janitorial wanted to include a retirement plan for their employees to enjoy also, she adds.

Northern Chemical Co., Glendale, Ariz., also has a 401(k) retirement plan available to its 30 full-time employees.

“Eligible employees have to be 21 years old or older and have been employed by Northern for at least one year,” says Melodie Lewis, accounting manager.

Northern will match 100 percent on the first 3 percent of company-deferred contributions and 50 percent on the next 2 percent company-deferred contributions, says Lewis. Northern has had a 401(k) plan since 1990.

“I felt like I wanted to contribute to the pension of my employees,” says Northern president Charlie Hayes. “Our plan right now is the most lucrative that the government allows. It was about three years ago that we switched to the maximum output option.”

State Janitorial Supply Co., Dover, Del., has a plan similar to a 401(k), but it is designed more specifically for small businesses, according to David Bryan, president.

“We offer a SEP (Simplified Employment Pension) that has been phased out by businesses over the years,” says Bryan.

SEP plans are more likely to be offered by companies with five to 20 employees, according to the survey.

Like 401(k) plans, the plan matches employee contributions, but doesn’t have high maintenance fees. State Janitorial will match 3 percent of employees’ contribution of 12 to 15 percent.

State Janitorial prefers to offer SEP plans instead of 401(k)s for a number of reasons.

“Our employees have to wait three years before we match their contributions because, unlike 401(k)s the money is theirs to keep,” says Bryan. “Employees have control of where they can put the money, and 10 years down the road we won’t take back the money like some types of 401(k)s can.”

Another major influence on distributors’ decision to offer a plan is because retirement plans often create better employee retention.

“Our plan was a good benefit for our family, but more importantly, it works as incentive when hiring new people,” says Miles. Now we can compete with the bigger companies because we offer just as much as they do in terms of retirement plans, she adds.

“Retirement plans help retain employees and help entice new employees,” says Bryan.

Although statistically, less than half of the small companies surveyed offer retirement plans, the numbers are growing.

Sometimes an employer is not able to offer a plan due to financial restrictions, but the distributors who can afford it are taking advantage of the opportunity to offer their employees a more comfortable retirement.

— Kari Strobel




POSTED ON: 4/1/2001