Much has been made around the nation of late about the need to offer retirement plans at small businesses, with the Department of Labor (DOL) recently releasing guidance about state-sponsored programs, which allow small businesses access to a state-sponsored retirement program. This seems logical, because much of the job growth in the country comes from small businesses, and therefore having plans offered by those companies is vital to people’s retirement saving success.
Data from the upcoming 2016 PLANSPONSOR Defined Contribution (DC) Survey illustrates that there has been significant growth in the small-plan segment. The growth in plans with fewer than 100 employees has been 137% over the last 10 years. On the large- and mega-plan side, the number of plans with more than 1,000 employees declined by 20% over that same time.
Back to the small end, it should be encouraging to see so much growth in that segment—which also includes micro plans—and one can assume this growth is because of the many start-up plans at small businesses.
Unfortunately, there are also more plan terminations in the smaller group than in any other market, potentially reinforcing the appeal of the state-run plans.
However, the growth in small plans may also have some link to the recent fiduciary, or conflict of interest, rule from the DOL that affects how advisers may be compensated and how they give advice. When examining how plans pay their retirement plan advisers, it is clear that commissions and other fees based on assets are most in use at the small end of the market.
This is the area that generally gets the most scrutiny—the concern being that, as plan size grows, adviser compensation increases, potentially with no change in service. Upmarket, plans are more likely to compensate their advisers on some sort of monthly or annual retainer. The commission-based business model for advisers giving advice will likely need to be adjusted at most plans in order to comply with the revised fiduciary rule.
Growth in Number of Plans
| ||12/31/2005||12/31/2010||12/31/2015||10-Year Growth Rate|
|Plans <100 employees||306,858||578,669||727,026||137%|
|Plans >1,000 employees||14,278||10,959||11,412||-20%|
What is the Adviser's Fee Arrangement?
| ||All Industries Overall||Micro||Small||Midsize||Large||Mega|
|% of plan assets (basis points)||41.1%||48.4%||54.5%||27.9%||13.9%||12.7%|
|Performance – investments||1.0%||1.3%||1.3%||0.8%||0.5%||0.0%|
|Performance – participation||0.4%||0.2%||0.6%||0.4%||0.5%||0.0%|
Source: Strategic Insight