SURVEY SAYS: Support for a Small Business Retirement Plan Mandate

Legislation drafted as part of the Congressional budget reconciliation process includes a broad mandate for employers to offer retirement plans, along with language promoting guaranteed retirement income investments.

Language in the draft bill would generally require small business employers to offer their employees a retirement plan. The language, which could be amended or deleted during the forthcoming debate, appears to permit a service/eligibility period of up to two consecutive 12-month periods. During that time, each of the to-be-enrolled employees would need to complete at least 500 hours of service to be eligible for the plan.

The bill would also require that auto-enrollment retirement plans offer participants with account balances of $200,000 or more an option to take a distribution of at least 50% of their vested account balance in the form of a protected lifetime income solution.

Last week, I asked NewsDash readers, “Do you support requiring small businesses to offer a retirement plan for employees?” I also asked, “Do you support requiring a protected lifetime income solution to be offered to defined contribution plan participants?”

Forty percent of responding readers work in a plan sponsor role, 31% work for/are recordkeepers/TPAs/investment consultants, 23% are advisers/consultants, 3% are attorneys and 3% are CPAs.

More than half (54%) of responding reader do not support requiring small businesses to offer a retirement plan for employees. Twenty-three percent said they do support it, and the same percentage said they are not sure.

More than six in 10 (63%) of respondents do not support requiring a protected lifetime income solution to be offered to defined contribution plan participants. Twenty-three percent do support it, and 14% are unsure.

Among respondents who left verbatim comments, there was a strong feeling that the government should not tell small businesses what to do about benefit offerings. Several readers said they thought a retirement plan mandate and/or a mandate to offer a protected lifetime income solution would create a fiduciary and administrative burden for small businesses. There was also strong sentiment that the government should be focusing on fixing Social Security and making sure it is solvent. A couple of readers said incentives for small businesses to offer a retirement plan would be better than a mandate. One reader suggested more education to employees about saving for retirement. There is no Editor’s Choice this week.

A big thank you to all who participated in the survey!

Verbatim

WE HAVE TOO MUCH GOV INTERFERENCE AT THIS POINT. LEAVE THE GOV OUT OF BUSINESS DECISIONS FOR THIS ASPECT.

It’s time for Congress and the IRS to put all qualified plans under the same set of rules (401(a)). There is no reason to have different rules for 403(b), 457, governmental, church, etc. It only causes confusion, requires recordkeepers to build more complex systems and expect them to work correctly for each plan type and requires plan sponsors to know which set of rules applies to their plans. We consistently hear “simplify.” In order to do that, the plans should be simple, consisting of contributions, allowing for hardships and distributions are retirement/termination. No loans, no other withdrawals. Remember, it is a RETIREMENT plan, not a bank account.

The federal government has no authority to require any matter of this nature.

I believe it would be an administrative burden for small employers, with costs that cannot easily be passed on to customers.

I’m not sure offering a protected lifetime income solution to participants is the most efficient way of saving. However, I’m not sure all plan sponsors offer enough matching and support to enable their participants to successfully save for retirement, or that participants have the knowledge to do so themselves so maybe this is the best solution.

Mandating a protected lifetime income option for plan participants sounds like a pretty nice windfall for the insurance companies. If that’s going to be the case, then there should be limits on the fees or amounts insurance companies can charge for the lifetime income option and I’m curious if the PBGC or State guarantee insurance fund would need to be involved to guarantee a minimum lifetime benefit if the insurance company went belly-up. On the other hand, could an employer have the option to self-insure the guaranteed lifetime income option through some form of supplemental defined benefit plan? In such case, I imagine it would then be subject to minimum funding standards under ERISA, actuarial valuations and once again back to the point of what basically killed DB plans in the first place…fluctuating (non-predictable) annual funding requirements and the PBGC burdens.

Some small businesses can’t currently handle the cost of a retirement plan, let alone some of the responsibility that comes with one. I think the idea behind requiring them to offer a plan is good, but in reality, I think it puts a lot more pressure on all the parties involved. When a plan sponsor wants a retirement plan, but is not responsive or promoting the plan, can you imagine the plan sponsor’s interaction who was forced to implement one? Goodness!

I agree on the mandate to provide a plan. However, any participant that wishes to have protected income can do so at retirement outside of the plan with an option that makes sense for them. I don’t think this should be mandated with a one size fits all income option in the plan.

I think most small businesses have their hands full already just surviving without adding more burdens and costs. There are individual retirement account options (IRAs) already available in the marketplace as well as lifetime income annuities available. I’d believe in retirement education over retirement solution mandates.

The funniest part of this plan is that the staffers providing the analysis say that this can all be done for zero administrative costs for the owners. Everyone should have retirement savings, but government mandates are not helpful. If they want to help just fix Social Security! That is already a mandated retirement plan. It’s not the employer’s fault that Congress fails to manage/finance it correctly.

While it would personally benefit me to require all small businesses to offer a retirement plan, I do not approve of government overstepping its bounds. There are some great incentives to sponsor retirement plans already. But some small employers are not equipped to handle the complexity, responsibilities and costs which are inherent with the administration of retirement plans. With regard to the lifetime income solutions, I see how costly annuities are already for defined benefit plans and expect that a greater market will increase the demand and rates even higher. However, I find it inconsistent that a spouse has to consent to a lump sum of $5,000 from a defined benefit plan but a participant can take a multi-million-dollar distribution from a DC plan without their spouse’s consent.

If plans are mandated (meaning there is no ability for an employer to opt-out of offering a plan), then a lot of employers will be saddled with ERISA responsibilities for which the employers are not prepared to do. The goals of a mandated plan would be accomplished efficiently as an extension of Social Security retirement with contributions collected concurrently with other payroll taxes. A mandated protected lifetime income option is a mandated investment menu option. Selecting, monitoring performance and fees, and changing providers of lifetime income products will be an added plan fiduciary responsibility for which many employers are not prepared to do. Protected lifetime income options have a role in guaranteeing benefits last for a lifetime and the guarantee functionally is insurance. It works because of gains and losses attributable to mortality experience are an important component of the success of these products. Let the individual participant decide whether or what to buy annuity insurance policy.

I think that smaller businesses – under 35 people, would find administering a 401(k) plan a burden. Is their accounting outsourced and/or does their bookkeeper have the knowledge to ensure compliance? Who among their staff would have the interest/knowledge to serve on a committee? Do they have staff members who can draft RFP’s and go thru the process of finding the cost effective/right TPA’s and investment advisors? Or…are there service providers out there that can provide all this without costing the small company a lot of money.

Our government is becoming too intrusive, and never considers the unintended consequences of their actions. The “Secure Act II” is a better solution by providing employers with the tools to assist their employees in acquiring more secure retirement.

Mandating a small business depends on your definition of “small.” I would support it for businesses with 50 or more participants. I’m not sure about less than 50 participants. I would like to see a federal government offering available to participants not covered by an employer-based plan.

When I read the title of the survey “Survey Says: Support for a Small Business Retirement Plan Mandate”, I got the shivers. Mandate. To me, that is a bad word. I don’t believe that the government should require small businesses to provide a retirement plan. What types of benefits businesses offer their employees should be their choice. Same logic applies for protected lifetime income solutions. If a recordkeeper wants to offer lifetime income solutions as part of their services, then plan sponsors should have the choice whether or not they want to offer it. Did you notice what word I’m using? Choice. That is a good word.

If an employee doesn’t contribute much, or at all, to a retirement plan, a lifetime income option will not be worth the trouble of creating these options.

As a small business owner, I hate to see mandates being imposed. I would rather see more incentives for a small business to offer a plan.

It seems this would be a way to kill off small businesses.

I support encouraging people to take responsibility for their own lives. Every alternative to this leads to an anti-selection death spiral for the economy, then the society, and eventually the country.

Instead of this mandate, Congress should be working on fixing the Social Security program. They need to stop paying out money that was deposited by working people to people that never contributed a penny in their entire life. When I retire in 10 years, I expect to receive all the money that I paid into SS over the past 50 years. I am entitled to that money.

In order to keep small plans efficient and affordable we must be careful not to overregulate. Encouragement is a better strategy than requiring.

We need less government intrusion…not more.

The government already mandates a retirement plan for small businesses. It is called Social Security & it offers a lifetime income option. Another retirement plan mandate would be onerous on small employers.