Don’t look now but retirement plans, which used to be an afterthought benefit, is becoming more important to smaller companies due to a tight labor pool according to a New York Times article (subscription may be required). Though only 14% of small businesses have an employer sponsored retirement plan according to the GAO, it’s becoming easier for employers to set up a plan due to technology and cheaper mutual funds for employees to invest in with many states requiring it including California and Illinois.
Citing a T-shirt manufacturer in Philadelphia started in 2002 with 180 employees, the NYTimes noted that most companies do not start a retirement plan for workers on day one. Strapped for cash and focused on growing and even surviving, small business might offer their employees a healthcare plan first especially with Obamacare with retirement as an afterthought. But healthier Millennials most of whom will never see a DB plan and are not counting on Social Security might view a 401k plan as a prime benefit. And people are 15 times more likely to save with a payroll deducted plan than on their own.
In the past, costs for smaller plans were prohibitive as providers based their fees on assets in the plan not participants. But overall costs are coming down, with mutual fund fees lowering mostly due to passive strategies, and online technology companies like Honest Dollar, ForUsAll and Betterment for Business offering interesting alternatives. The DOL fiduciary rule may make robo advisors more popular as many advisors serving the small market may be unable to act as a fiduciary whereas their robo counterparts can.
Best advice from the T-shirt manufacturer: “…get educated by someone you trust. Don’t do it yourself.” Wise words for us all, even if you have a 401k or 403b plan already and inherited it without proper training or guidance.
