Small Business Employees Significantly Trail Their Large Company Counterparts in Retirement Savings and Preparedness

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1 Transamerica Retirement Services 1150 Suth Olive Street Ls Angeles, CA Cntacts: Michael Altfest/Vivian Dan Edelman (415) Small Business Emplyees Significantly Trail Their Large Cmpany Cunterparts in Retirement Savings and Preparedness Annual Transamerica Retirement Survey Highlights Majr Difference in Hw Large and Small Emplyers and Emplyees Treat Retirement Benefits LOS ANGELES April 30, 2007 Small business emplyees are at a disadvantage when it cmes t retirement savings, accrding t the results frm the Eighth Annual Transamerica Retirement Survey. 1 When cmpared t emplyees at large cmpanies, small business emplyees are less likely t have access t a 401(k) r emplyee-funded retirement plan, and are less active than their large cmpany cunterparts in saving fr a cmfrtable retirement. Fr small business emplyees, this translates t lwer husehld retirement savings and a greater number wh expect t rely n Scial Security as their primary frm f incme in retirement. Accrding t the results, nly 18 percent f small business emplyees reprted having saved $100,000 r mre in all husehld retirement accunts, while 29 percent f emplyees at large cmpanies reprted having saved that much. Similarly, nly 37 percent f small business emplyees believe that their emplyer-spnsred retirement plan will be their primary surce fr incme during retirement, while 19 percent still expect t rely n Scial Security as their primary surce. This is a stark cntrast t the 49 percent f large cmpany emplyees wh expect their retirement plan t be the primary surce, cmpared t nly 11 percent wh still expect t rely n Scial Security. Which ne f the fllwing d yu expect t be yur primary surce f incme t cver yur living expenses after yu retire? 401(k) accunt/iras Other savings and investments Cmpany-funded pensin plan Scial Security Inheritance Hme equity Other (v) DK/REFUSED 3% 1% 3% 4% 15% 20% 16% 14% 11% 19% 37% 49% 0% 10% 20% 30% 40% 50% 60% Small Businesses (N= 731) Large Cmpanies (N= 671) 1 Fr the purpses f this study, small businesses are defined as having 10 t 499 emplyees and large cmpanies are defined as having mre than 500 emplyees.

2 Nt enugh is being dne t help small business emplyees prepare fr a cmfrtable and secure retirement, says Catherine Cllinsn, retirement and market trends expert fr the Transamerica Center fr Retirement Studies. Lwer savings rates ultimately lead t a reliance n the future f Scial Security, which underscres the need fr a wake-up call amng emplyers and emplyees alike. Emplyers and Emplyees Bth at Fault One majr reasn fr this gap has t d with access t a retirement plan. Data frm the survey fund that nly 65 percent f small business emplyees reprt being ffered an emplyeefunded retirement plan, cmpared t 84 percent f emplyees at large cmpanies. Meanwhile, 20 percent f small business emplyees reprted nt receiving any frm f retirement benefit frm their emplyer. Furthermre, amng thse with access t a plan, nly 69 percent f small business emplyees reprted being ffered an emplyer matching cntributin, while 86 percent f large cmpany emplyees are ffered ne. Emplyers are nt entirely t blame, hwever. When ffered a plan, small business emplyees are less likely than emplyees f large cmpanies t participate r have mney invested in the cmpany s plan (70 percent vs. 76 percent), while als cntributing a slightly lwer percentage f their salary (based n median). Mrever, small business emplyees are als less likely t be saving utside f wrk (52 percent, cmpared t 61 percent f large cmpany emplyees). Of thse small business emplyees that aren t currently participating, 31 percent dn t plan t in the future. One cntributing factr t this discrepancy is that small business emplyees tend t earn less than emplyees at larger cmpanies. Hwever, small business emplyees are slightly less likely than large cmpany emplyees t cite being financially stretched as a reasn fr nt participating in their cmpany s retirement plan (26 percent vs. 29 percent). As the numbers f small businesses and small business emplyees in the U.S. cntinue t grw, it becmes increasingly vital that these emplyees receive the tls they need t prepare fr a cmfrtable retirement, says Cllinsn. Under the current circumstances hwever, there are ample pprtunities fr emplyers and emplyees alike t help imprve the status f retirement preparedness amng small businesses. Small Business Emplyers Shwing Little Signs f Future Imprvement In light f this difference between small and large cmpanies ffering plans, there is equally discncerting data t suggest little prgress is n the hrizn: nearly three-quarters (73 percent) f small businesses that dn t currently ffer a retirement plan indicated that they weren t likely t in the near future. In fact, nly three percent f small business surveyed stated that they were very likely t ffer ne in the near future. The fur mst cmmn reasns given by emplyers fr nt likely ffering a plan in the next tw years were: cmpany is nt big enugh (43 percent), lack f management r emplyee interest (41 percent and 34 percent, respectively), and cst cncerns (34 percent). While these reasns might be valid, it s pssible that they may t be miscnceptins, says Cllinsn. Fr example, 90 percent f small business emplyees cnsider a 401(k) r ther emplyee self-funded plan t be imprtant, while 61 percent said they wuld likely leave their

3 jb fr ne that des ffer retirement benefits. Added Cllinsn, Emplyers need t weigh these reasns against the csts f nt ffering a plan such as a dissatisfied r shrinking staff. Taking Steps t Clse the Gap Accrding t the survey results, small business emplyees are less likely than large business emplyees t feel that they are building a large enugh retirement nest egg (60 percent vs. 70 percent) and are als mre likely t believe that they wn t have saved enugh by age 65, with ne-quarter expecting t retire after age 65 r never. Small business emplyers share their sentiment: 83 percent agree that their emplyees culd wrk until age 65 and still nt save enugh and are much mre likely than large cmpany emplyers t be nt at all cnfident in their emplyees ability t have a cmfrtable retirement lifestyle (12 percent vs. 4 percent, respectively). The bright spt is that there are plenty f things that small business emplyers and emplyees can d t help remedy this, says Cllinsn. Thanks t new legislatin and innvative imprvements t the retirement space, there are a number f tls available that meet the needs f bth emplyers and emplyees t help pave the way fr a mre secure retirement. Sme steps that emplyers can take t better cmmunicate with their emplyees and prvide a retirement plan that helps them prepare fr the future include: Read the need. If a plan is ffered, make sure it s meeting the needs f yur business and emplyees. There are many prvisins within last year s Pensin Prtectin Act that may help enhance yur current plan. If a plan isn t currently ffered, evaluate hw that is affecting emplyee satisfactin and examine ways t implement ne. Cnsider all the ptins. The IRS has favrable tax rules fr small businesses t help their emplyees save. Maybe a traditinal 401(k) isn t the best ptin lk at ther ptins like a SEP r SIMPLE-IRA. Initiate nging dialgue with emplyees n the imprtance f preparing fr retirement. Even if ffering a plan is nt an ptin at this stage, help direct emplyees in the right directin with infrmatin n investment ptins like traditinal r Rth IRAs. Sme steps fr emplyees that will help them take better cntrl f their retirement security include: Start by enrlling in a plan. Yur cmpany-spnsred plan is ne f the simplest and mst cnvenient ways t save. It s als a tax efficient way t make sure yu re keeping mre f yur wn mney. If yu re already participating in yur emplyer s plan, cnsider cntributing mre. Mst peple saving fr retirement dn t max ut their cntributin limits, and a large number dn t even cntribute up t their cmpany match. By nt cntributing at least that much yu are literally turning dwn free mney.

4 If yu dn t have access t a plan thrugh yur emplyer, let yur emplyer knw that yu wuld like t have ne. Als, cnsider cntributing t a traditinal r Rth IRA. ### Abut Transamerica Center fr Retirement Studies The Transamerica Center fr Retirement Studies ( The Center ) is a cllabratin f experts assembled by Transamerica Retirement Services t prmte public awareness f emerging trends surrunding retirement security in the United States. The Center s research emphasizes emplyer-spnsred retirement plans, issues faced by small- t mid-sized cmpanies and their emplyees, and the implicatins f legislative and regulatry changes. Fr mre infrmatin abut The Center, please refer t Abut Transamerica Retirement Services Transamerica Retirement Services ( Transamerica ), a marketing unit f Transamerica Financial Life Insurance Cmpany and ther f its affiliates, designs custmized retirement plan slutins t meet the unique needs f small- t mid-sized businesses. Transamerica Retirement Services ranked as a tp-five plan prvider 2 in a recent PLANSPONSOR Magazine Defined Cntributin Survey and has mre than 14,500 3 retirement plan clients ttaling mre than $ billin in assets. Fr mre infrmatin abut Transamerica, please refer t Eighth Annual Transamerica Retirement Survey: Abut the Survey Transamerica Retirement Services cnducted a natinal survey f U.S. business emplyers and wrkers regarding their attitudes tward retirement. The research emphasizes emplyer-spnsred retirement plans, issues faced by small- t mid-sized cmpanies and their emplyees, and the implicatins f legislative and regulatry changes. T this end, Harris Interactive was cmmissined t cnduct the Eighth Annual Retirement Survey fr Transamerica Retirement Services. There are tw cmpnents t the survey: Emplyer and Wrker. Where apprpriate, questins were tracked and sme new questins were added t investigate new tpics f interest. Emplyer Survey Cmpnent This part f the survey was cnducted by Harris Interactive n behalf f Transamerica Retirement Services via telephne within the U.S. amng 659 wners/heads f small businesses and benefits decisin-makers in larger cmpanies, using a natinally representative randm sample. Respndents met the fllwing criteria: business executives wh make decisins abut emplyee benefits at their cmpany, must be at a cmpany that emplys 10 emplyees r mre, and nt wrk fr a gvernment, educatin r nt-fr-prfit rganizatin. Interviews averaged 18 minutes in length and were cnducted between July 25 and Octber 10, Data were weighted t ensure that each quta grup had a representative sample based n the number f cmpanies in each emplyee size range. With a pure prbability sample f 659, ne culd say with a 95 percent prbability that the verall results wuld have a sampling errr f +/- 3.8 percentage pints. Sampling errr fr data based n sub-samples wuld be higher and wuld vary. Hwever, that des nt take ther surces f errr int accunt. 2 The Nvember 2006 PLANSPONSOR Magazine Defined Cntributin Survey results place Transamerica Retirement Services as a tp-five prvider ut f 50 fr retirement plans with up t $50 millin in assets based n ttal number f cups wn. See the Nvember 2006 issue f PLANSPONSOR Magazine fr cmplete results. 3 As f December 31, 2006.

5 Wrker Survey Cmpnent This part f the survey was cnducted by Harris Interactive n behalf f Transamerica Retirement Services via telephne within the U.S. amng 1,402 wrkers, using a natinally representative randm sample. Respndents met the fllwing criteria: wrk full-time fr pay at a cmpany with at least 10 emplyees, are age 18 r lder, and d nt wrk fr the gvernment nr a nn-prfit rganizatin. Interviews averaged 20 minutes in length and were cnducted between July 27 and Octber 7, Data were weighted t ensure that each quta grup had a representative sample based n the number f emplyees at cmpanies in each emplyee size range. With a pure prbability sample f 1,402, ne culd say with a 95 percent prbability that the verall results wuld have a sampling errr f +/- 2.6 percentage pints. Sampling errr fr data based n sub-samples wuld be higher and wuld vary. Hwever, that des nt take ther surces f errr int accunt. All surveys are subject t several surces f errr. These include: sampling errr (because nly a sample f a ppulatin is interviewed); measurement errr due t questin wrding and/r questin rder, deliberately r unintentinally inaccurate respnses, nnrespnse (including refusals), interviewer effects (when live interviewers are used) and weighting. With ne exceptin (sampling errr) the magnitude f the errrs that result cannt be estimated. There is, therefre, n way t calculate a finite margin f errr fr any survey and the use f these wrds shuld be avided. Abut Harris Interactive Harris Interactive is the 12 th largest and fastest-grwing market research firm in the wrld. The cmpany prvides innvative research, insights and strategic advice t help its clients make mre cnfident decisins which lead t measurable and enduring imprvements in perfrmance. Harris Interactive is widely knwn fr The Harris Pll, ne f the lngest running, independent pinin plls and fr pineering nline market research methds. The cmpany has built what it believes t be the wrld s largest panel f survey respndents, the Harris Pll Online. Harris Interactive serves clients wrldwide thrugh its United States, Eurpe and Asia ffices, its whlly-wned subsidiary Nvatris in France and thrugh a glbal netwrk f independent market research firms. The service bureau, HISB, prvides its market research industry clients with mixed-mde data cllectin, panel develpment services as well as syndicated and tracking research cnsultatin. Mre infrmatin abut Harris Interactive may be btained at T becme a member f the Harris Pll Online and be invited t participate in nline surveys, register at