Small-Employer DC Plan Coverage Gap Varies by Region

A new report from Finhabits, “Latino Small Business Workers Lack Retirement Savings,” shows that the smaller the employer, the less likely is the organization to offer any type of tax-qualified retirement plan, such as a 401(k).

On average, the research shows, only 10% of U.S. small-sized businesses—defined here as those with fewer than 100 employees—offer a retirement plan to employees. Even more troubling, when ranking select metropolitan areas by percentage of Hispanic population, the report portrays “a troubling correlation between access to retirement plans and the Hispanic population of a city.”

“Minorities—Hispanics in particular—are significantly less prepared than their white counterparts when it comes to retirement readiness,” researchers note. “In the five most-Hispanic metro areas analyzed, including Laredo, Texas; McAllen-Edinburg-Mission, Texas; Brownsville-Harlingen, Texas; El Paso, Texas; and Las Cruces, New Mexico, on average only 4% of small businesses offered retirement plans to their employees. This figure is in contrast to an 11% participation by firms in the five least-Hispanic metro areas we analyzed. Both numbers are a cause for concern, but it’s clear that Hispanics metro areas are worse off.”

As laid out by Finhabits’ report, very few workers save for retirement unless their employer offers them a retirement plan. As a result, overall, only 30% of small business workers are saving for retirement in the U.S.

“The previously mentioned correlation between retirement savings and the Hispanic population of a metro area is more noticeable here,” researchers explain. “Only 11% of workers in the five most Hispanic metro areas are saving for retirement compared to 35% of workers in the five least Hispanic areas. When looking at the state-level numbers, the same argument holds true. At a glance, every state is failing with the average being below 30%, but the Southern and Midwestern States are worse off than the Northern States.”

The data shows Arizona, New Mexico, Florida, and Texas all have Hispanic population levels above 20% and are among the states where employees are least likely to be saving for retirement. Important to note, California sits as an outlier in the research: Despite being among the states with a high Hispanic population (38.4%), their retirement health is above the average.

The analysis concludes the U.S. “stands at point in time when access to employer-sponsored retirement accounts is decreasing and participation when plans are available is worryingly low. The data we analyzed and presented highlights the problem for individuals working in small businesses in predominantly Hispanic metro areas. We believe the only solution is to provide these individuals with an alternative to the status quo approach to retirement savings.”