Re-enrollment Keeps Micro Retirement Plans Ongoing

Unlike established retirement plans with hundreds or thousands of participants, startup plans at small businesses are often at risk of folding because of weak participation.

Andrew Meadows, consumer and brand ambassador at Ubiquity Retirement + Savings (formerly The Online 401k), tells PLANSPONSOR that regular re-enrollments can be a lifeline for small business retirement plans.

Ubiquity’s average plan client has just 12 participants, Meadows notes, calling the small and micro plan segment “our bread and butter.” He says Ubiquity has found success in this segment of the retirement plan market because it strives to be independent and affordable—selling only recordkeeping and administration and using index-based, third-party investment options. But the small and micro plan segment is not without its challenges.

“Being in the small and micro plan environment, we’re actually at risk of losing clients, whole plans at a time, if enough of the employees don’t decide to participate,” he explains. “If a small business plan is only benefiting a small group of employees out of a small workforce, you can bet the owners are going to question the cost of administering the plan.”

For this reason, Ubiquity makes it a priority to talk with small-plan sponsors and business owners about the benefits of regular re-enrollments. Automatically sweeping all or some of the small business’ staff into the retirement plan will not only ensure the ongoing stability of the plan, Meadows says, it also increases the chances that employees will have a successful retirement by kick-starting the investment process.

“It’s not hard to image a scenario in which a plan with 10 participants sees participation drop 50% or more really suddenly—there could be a big staff turnover due to a wave of retirements, for example,” Meadows says. “Re-enrollment is really important in this context and helps make sure the plan continues to grow and endure, especially when it is combined with automatic plan enrollment for new employees.”

Small business owners tend to wear many different hats, Meadows adds, “So it’s on us to make the re-enrollment process as easy and effective as possible.”

“We are big on a consulting approach in this sense,” Meadows says. “The typical small business client probably doesn’t have a dedicated HR person who has re-enrolled a retirement plan before. It’s a real opportunity for us to be able to look at their situation and help them design the right plan for both employer and employee.”

Meadows suggests that small business plan officials engaging in a re-enrollment should assess how the company has changed since the initial launch of the plan. The challenges and objectives of small businesses can shift rather quickly compared with more established organizations, Meadows notes, adding more importance to the concept of regular re-enrollments.

“If you’re going to re-enroll, you can also build engagement by creating new pieces of the plan to point to and advertise,” he continues. “Maybe you’ll add a new loan provision that will encourage more people to get into the plan, or maybe you’ve stretched the match or added a hardship provision. This sort of change should be presented front and center to the work force.”

Meadows suggests regular re-enrollments won’t just benefit the rank and file at small businesses—owners will see a variety of benefits that come along with a strengthened retirement plan.

“If it’s just the owners contributing to a retirement plan you’re almost guaranteed that you’ll run into a top-heavy situation—there will be too much money in the plan that is benefitting the highly compensated employees,” he says. “That’s a conflict we are always having to watch for, and one we can fight with re-enrollment. We really want to avoid having to take money out of the plan.”

Small businesses often say they can’t afford the cost of administering a plan or making employer matching contributions, Meadows says, so they are afraid to establish a plan.

“One thing we can point out here is just the positive business performance impact that including a retirement plan can have in terms of things like productivity and workforce loyalty,” Meadows notes. “We can also talk to the small business owners about all the tax credits available for plan sponsors—that’s a language they understand and which really resonates with a lot of small business owners.”

For example, Meadows says there is a tax credit available for small business owners establishing a new qualified retirement plan, amounting to $500 for three consecutive years, for a $1,500 total tax savings right off the bat. 

“If you go with a low-cost plan provider, that’s probably going to be a third or even half of what you’ll spend to run the plan over that time period,” Meadows says. “Then you can talk about tax deductions. Any employer contributions that you make become tax deductible for the company.

“Probably the most effective argument I can make is that establishing a retirement plan will be great for the business owners’ own long-term financial security,” Meadows concludes. “Getting the rank-and-file employees into a plan will allow you, as the business owner, to maximize your own tax-advantaged investments and savings via the plan. It’s a win-win.”