Small Firms Say 401(k)s Work, but Express Concerns
The report, “The Small Plan 401(k) RetireWell Study: What’s Working and Not Working for Small Businesses,” says nine plan sponsors in 10 think of their 401(k) plan as a useful recruiting and retention tool. “If a retirement plan is considered essential, then why wouldn’t you want to offer it?” says Douglas Dubitsky of Guardian Life Insurance Retirement Solutions.
Employers also think their plans work for their employees. Approximately nine in ten say their 401(k) is successful in terms of making retirement savings easier, providing planning tools, encouraging systematic savings and helping employees fund a secure retirement.
While the majority of plan sponsors are satisfied with their retirement plans, the underlying fees and expenses, including the potential cost of a match, are cited as major concerns when offering retirement savings plans at the workplace. Additional concerns include the staff and executive time required to manage the plan along with the need to educate employees to manage their investments.
The study also revealed that small business owners are confused by their fiduciary roles and responsibilities, with nearly one in five plan sponsors not satisfied with the current level of fiduciary support they receive. Additionally, almost one-third of plan sponsors did not realize they were, in fact, the plan fiduciary, when asked.
Some common issues raised by plan sponsors as potential disadvantages to offering a plan include out-of-pocket expenses (43%), potential fiduciary risks associated with offering investments and advice to participants (44%), the complexity of workplace retirement plans (41%) and the need to educate employees about managing investments (36%).
These issues are precisely where the adviser comes in, Dubitsky tells PLANSPONSOR. The adviser can simplify a complex process and a complex product. “We saw in so many cases that the areas that keep people from offering a retirement plan are the areas an adviser can add value,” he says.
Virtually all plan sponsors (98%) surveyed are either “very” or “somewhat” satisfied with their 401(k) plan. However, more than half of plan sponsors (61%) who work with a financial professional are “very satisfied” with their 401(k) plan overall, compared with only 40% of sponsors who do not work with a financial professional.
Guardian found 46% of businesses surveyed did not offer a retirement plan, with many citing the potential expense as a deterrent. Fifty-eight percent indicated they were interested in setting up a plan within the next three years, but nearly 30% of business owners did not know which type of plan was best suited for their company (see “Thinking ‘Small’ About Plan Design”).
The regulations of ERISA [the Employee Retirement Income Security Act ] can also make plan sponsors tense, and even prevent them from offering a retirement plan, according to Dubitsky. “People throw around the word ERISA, and the complexity is daunting for a small-business owner,” he says. A well-educated adviser can simplify everything going on in the plan.
The amount of satisfaction found in the survey was gratifying, Dubitsky says. “401(k) plans sometimes get a bad rep in the media. We’re seeing that people are overwhelmingly satisfied with their plans. Once you move past all the noise in the media and competing political entities, the employer-sponsored retirement plan has been the most effective and efficient way for people to save for retirement, and people like it.”
The online survey was conducted by Brightwork Partners between November 12 and December 14, 2013, and is based on interviews with 451 senior executives from for-profit organizations with 25 to 249 employees that have been in business three years or more and who are involved in the selection and evaluation of providers of employee benefits such as health and retirement plans.
To obtain a copy of “The Small Plan 401(k) RetireWell Study: What’s Working and Not Working for Small Businesses”, contact Ana Sandoval of Guardian at Ana_Sandoval@glic.com.