LIMRA Finds 75% of Small Businesses are Stable or Growing – Positive Sign for Benefits Industry

According to the U.S. Census Bureau, there are more than 5.8 million small businesses in the United States with 2 to 99 employees, representing 98% of all U.S. employers and about a third of the total U.S. workforce. A new LIMRA report finds three quarters of small businesses report they are stable or expanding. In 2012, just 61% of small businesses felt similarly. This increase in stability and growth is a positive sign for the employee benefits industry since expanding businesses have a greater need to enhance their benefits offerings to attract talent.

The study found almost 6 in 10 small businesses currently offer at least one insurance benefit to their employees. This is 11 percentage points higher than the 2012 results when this survey was last done. Small businesses with 50-99 employees offering at least one insurance benefit also increased 11 percentage points from 2012 (84% in 2012; 95% in 2018). Much of these increases can be attributed to a stronger economy and record-low unemployment rate, which puts pressure on small businesses to offer benefits in order to attract and retain talent.

When it comes to specific insurance benefits, medical coverage is far more prevalent than any other product (chart). Compared with its 2012 study, LIMRA finds small firms are more likely to offer medical, short-term disability, and accident benefits, while penetration rates for life and cancer insurance have declined.

The number of small businesses offering retirement offerings are at the highest level since 2000. In 2018, 43% of all small businesses offered retirement benefits. This is more than 50% higher than in 2012. Recent initiatives at the federal and state level to expand access to workplace retirement savings may be contributing to this growth.

The increase in insurance and retirement benefits can be attributed to a stronger economy and record-low unemployment rates. To compete in this market, small employers may feel pressure to offer a more robust benefits package to attract and retain the right talent.

A new trend LIMRA is seeing in the workplace benefits space is the growth of non-traditional offerings. Overall, 58% of small businesses offer some type of nontraditional benefit. The most common of these benefits is paid time off (PTO), such as paid vacation and sick time. Today, 45% of small businesses offer PTO. Work-life benefits — such as flexible schedules, compressed workweeks, or remote working arrangements — are offered by almost 1 in 5 small employers. It is not surprising that these benefits are popular, since there is generally little direct cost associated with making these arrangements available. In contrast, less than 5% of small businesses are offering newer benefits such as financial wellness programs, identity theft protection or genetic testing.

The study found small businesses that currently offer benefits show every intention of continuing to do so. Just 2% of firms with benefits intend to drop an insurance or retirement benefit within the next two years. In contrast, 6% of small employers say they want to offer a new insurance benefit and 4% say they plan to offer a new retirement benefit. For those who are interested in adding a benefit, 21% said they want to add a medical plan and 19% want to add a retirement benefit. Ten percent of small businesses said they were interested in adding a dental benefit and 5% said they were interested in adding life and vision coverage.

LIMRA researchers find small employers are viewing benefits as more important than in the past. Compared with three years ago, 42% of firms with benefits believe it is more important to offer insurance benefits today, while only 1% feel it is less important. Likewise, 40% of small employers feel that offering retirement benefits is more important today. This sentiment increases with company size, with almost two thirds of firms with 50 to 99 employees sensing that benefits have grown in value. This is good news for workers who often rely on their employers for these benefits to attain financial security.