According to “The Impact of the Upcoming Re-Proposed Department of Labor Fiduciary Regulation on Small Business Retirement Plan Coverage and Benefits,” released by the U.S. Hispanic Chamber of Commerce (USHCC) and co-sponsored by Davis & Harman LLP, “far-reaching regulatory changes, like the DOL expansion of fiduciary status, will only impede the ability of small firms to offer their employees retirement plan accounts, thus hindering American workers from saving for a reliable future.”
The authors of the study say, “The DOL regulation is generally expected to prohibit retirement plan providers and the advisers who sell retirement plans from assisting employers in the selection and monitoring of funds in the retirement plan. Instead, employers could either perform the functions themselves or hire an independent expert to do it.”
When it comes to investment selection and monitoring for retirement plans, the study shows about 67% of plan sponsors rely on a plan adviser or recordkeeper affiliated with a plan provider for support in these areas. This is especially true for smaller companies (i.e., those with between 10 and 49 employees).
The study finds 90% of plan sponsors are “satisfied with their plan’s current investment choices” and 80% say these advisers and recordkeepers are doing “a very good or excellent job in helping in both the selection and monitoring of investments.” On the other hand, around 50% of plan sponsors say they would “do a fair to poor job in selecting and monitoring the investments themselves.”
In addition to potential issues being created in the areas of investment selection and monitoring, the study also finds plan sponsors not only dislike the concept of the DOL regulation, but also feel it may cause them to reduce the retirement-related benefits offered to employees.
For example, the study finds:
- Nearly 30% of small businesses with a retirement plan indicate it is at least somewhat likely they would drop their plan if this regulation were to go into effect.
- Nearly 50% of small businesses with a plan say it is at least somewhat likely the regulation would result in them reducing their matching employer contribution, offering fewer investment options, and increasing fees charged to participants.
- Nearly 50% of small businesses without a plan state the regulation would reduce the likelihood of them offering a plan, with 36% saying it would reduce the likelihood greatly.
- More than 40% of small businesses without a plan say the regulation would be at least somewhat likely to cause them to charge higher fees to participants and not offer matching employer contributions.
The authors of the study note that because small business owners create nearly two-thirds of new jobs in the United States, their interests are important. The authors also note how Hispanic entrepreneurs are an increasingly important segment of this small business demographic, citing estimates that more than 3.1 million Hispanic owned businesses will contribute in excess of $468 billion to the U.S. economy during 2014.
In contrast, another group representing Hispanics, the Congressional Hispanic Caucus, threw its support behind the DOL’s proposed fiduciary redefinition (see “Congressional Hispanic Caucus Weighs in on Fiduciary Rules”), while calling upon the DOL to ensure participants are protected against misleading or harmful advice.
The study was conducted by Greenwald & Associates and National Research, on behalf of the USHCC, from November 18, 2013 to January 10, 2014. More than 600 retirement plan decisionmakers were surveyed via phone, 505 with defined contribution plans and 102 with other retirement plans. The respondents were decisionmakers in the retirement plan of a company that had been in business for at least two years with more than $400,000 in gross revenue.
A copy of the study can be downloaded here.
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