Could an explosion in the small plan market be a very real possibility in our near future? Will the 401(k) plan be as common among small businesses as it is among large corporations? A new study from the Spectrem Group suggests that this may very well be the case.

According to the consulting firm, there will be 167,000 firms with under 100 employees that will be adding retirement plans in the next two years. Spectrem estimates that there will be approximately 1.6 million participating in a company-sponsored retirement plan.

"It's not suprising that small businesses are adding retirement plans. In the past few years, we've seen more focus among larger companies on retirement savings needs of their workers, as well as a tremendous reise in the level of public awareness of 401(k) and other plans. These trends are working their way down to the smaller end of the market," stated Catherine McBreen, head of Spectrem's Retirement Services Consulting Practice.

Nonetheless, the study also found that 70% of companies in this class do not have a retirement plan nor do they intend to offer one. The survey also found the following:

• Owners of small businesses only expect to get 26% of their retirement savings from a retirement plan.
  
• Small business owners are most likely going to check with a CPA for information about a retirement plan.
  
• In 40% of plans at small businesses, the employer provides the funding for the retirement plan. In 50% of the cases, employer and employees share the costs. In the remaining 10% of cases, the employees make the contributions.
  
• Mutual funds, insurance companies, and full service brokerages are the top three kinds of firms that serve as the investment manager for small-sized retirement plans. Each has about 25% of the market.
  
• Small business owners had two principle reasons for instituting retirement plans -- to provide tax-deferred savings from the owner and to "recruit and retain" strong employees.
  
• 44% of the respondents who are going to be instituting a retirement plan reported that they believe that retirement plans will be more important in two years time than right now.

Recently, the industry has seen a number of firms either begin to target the small plan market as part of their overall strategy or form to focus on that arena specifically. Spectrem's data indicates that their hopes of exploiting this last great frontier of the 401(k) industry may not be unfounded.

Still, that optimism needs to be tempered with some pragmatism. Of the 7.6 million companies in this strata, 5.3 million (or 70%), have no intention of instituting retirement benefits at this point. Now, either those firms will remain true to their word, or they will change their minds. In either case, they represent either no sales or extraordinarily tough sales for marketing teams. The small plan market may be becoming a little easier to navigate, but it still has a long way to go. 

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