Just as NYC Mayor Bill de Blasio is set to offer retirement plans to smaller companies following a pattern set by almost 25 states, a management consultant with over 600 small business clients thinks that access and costs are not the issues for smaller businesses where less than 50% of workers are covered. The issue is related to education about the real cost and ease of setting up a corporate retirement plan.
De Blasio estimates that only 40% of New Yorkers are covered by a retirement plan at work. The announced initiative would cover companies with ten or more employees. NYC has $160 billion in pension funds but it is not clear whether private workers would be able to tap into that plan or would be required to offer one.
But management consultant Gene Marks writing in the Huffington Post claims that small businesses have access to private retirement plans for relatively minimal costs. And maybe more than larger employers, small business owners care about their workers and have a vested interest in seeing that their workers have something meaningful to retire on. Marks claims that small business owners are too busy to find out what options are available and, given more education, would be more than willing to offer a retirement plan at work if they knew how relatively easy and cheap they are. Another issue is the lack of trust in the financial industry.
Though defined contribution (DC) plans are readily available for smaller companies and can be set up for minimal costs especially with a growing group of robo record keepers cropping up and the President’s initiatives to allow for MEPs (multiple employer plans) where companies can outsource work and pool resources, there are issues. Generally, advisors working in the very small market lack the expertise to properly guide their clients and often collect fees without doing much work. Hidden fees for small plans can erode the savings of workers and though an experienced TPA or record keeper can navigate ERISA liability, many small companies cannot afford the attention to make sure that the plan is in proper compliance avoiding fines. And even HR resources that pool clients into one plan might be at risk based on a recent lawsuit.
Regardless, the issue of retirement coverage of people at work is not going away which could lead to interesting developments for smaller employers.
