No Matter How Small, Businesses Have Retirement Plan Options

Michael Kreps recently tested the definition of how small a defined contribution plan can be when he helped a trade association client with just two employees establish a retirement plan.

“A lot of times employers will be shy about starting a 401(k) because they think it’s a lot of cost or expense and time and energy,” says Kreps, chair of the retirement services group at the Groom Law Group, based in Washington, D.C. “It can be for big Fortune 500 companies that run 401(k) plans that put a lot of money into those plans and design and consultants, but for small employers, there are plenty of off-the-shelf products.”

For many, the main subject employers should consider does not concern cost or administrative ease, but the overarching purpose of the plan, Kreps advises. Those key, first-principal questions to ask may include: Is the intent of the 401(k) to attract and retain talent? What does your workforce need?

‘A Lot of Excitement and Zero Pushback’

Andy Nelson, the human resources manager at Bonfe’s Plumbing, Heating & Air Service Inc. in St. Paul, Minnesota, has seen first-hand how interest has built in the company’s 401(k) plan. Currently, the 185 Bonfe’s employees, based in the Minneapolis-St. Paul area, are automatically enrolled into the retirement plan at a 10% contribution rate. While Bonfe’s provides a 5% match. The plan’s participation ranges between 96% and 98% of the workforce.

Nelson sees the retirement benefits as a key piece of the company’s appeal to employees and as a contributing factor to its relatively low staff turnover, which is about 15% among trade employees, well below the industry’s 50% to 60% norm, he says. Call center employees’ turnover is a bit higher at 25%. More recently, he has been tasked with creating a defined contribution plan for another, 25-employee plumbing and HVAC company. Based on his experience with Bonfe’s employees, he is unconcerned about starting it for a smaller group of employees.

“It works for the company,” he says. “There’s not a lot of those kinds of benefits for this type of business, so there’s a lot of excitement and zero pushback.”

When he started eight years ago, he learned on the job, helped by the company’s fiduciary consultant, Matt Voecks, a retirement plan adviser with World Investment Advisors (formerly Pensionmark) in Bloomington, Minnesota, who walked him through all the steps in overseeing the 401(k) plan.

As for administration, Nelson says he has not found overseeing the retirement plan overly difficult. He credits Voecks for getting him up to speed and for being on call for the employees.

“He comes to our company and speaks, and we set up days where employees can come and just visit with him,” Nelson says. “He really holds their hands through something that most people don’t really know about, especially in our industry.”

Voecks sees companies like Bonfe’s benefitting from partnering with an administrator to handle the fiduciary duties. Voecks, together with his colleagues overseeing 401(k) offerings from The Standard, manage most day-to-day operations. “For a lot of organizations, it’s finding a partner that handles a lot of the administrative tasks,” Voecks says.

He notes that small employers starting a plan today can take advantage of pooled employer plans, which handle almost all the fiduciary duties, including delivering plan notices, signing and filing their annual Form 5500 with the Department of Labor, and outsourcing hardship assessments and loan administration. If the plan is large enough for an audit, , he adds.

“Whenever possible, you want to find a partner that picks up the phone and answers it, so you can get on with your day,” Voecks says. He also advises employers to go through the list of fiduciary obligations and ability to outsource. “There is kind of a sweet spot on the PEP route that fills the need for those organizations that want to offer the benefit but also don’t want the more onerous responsibilities.”

‘Not That Hard to Put a Plan in Place and to Operate It’

Kreps sees employers considering a range of choices from extremely customized options that are specifically tailored to their workforce with a full-fledged defined benefit plan to the extremely simplified and most affordable approach of a payroll deduction individual retirement account. In that instance, employers have been able to work with a financial service provider to make IRAs available to everyone on a payroll deduction basis; beyond that, the employer has no involvement.

“There’s zero cost for the employer,” Kreps says. “They do literally nothing except open the door.”

For employers interested in a simple 401(k) plan, most financial institutions provide an off-the-shelf product that is typically simple, pre-designed and a more affordable choice than a custom plan, according to Kreps, who sees many small companies start there, then “graduate” to something more tailored when the company grows.

“We have government subsidies and incentives that make the options cheaper, and we have a very mature system with very mature service providers that do this very efficiently so it’s really just a capacity and focus issue for a lot of employers,” Kreps says. “I fully recognize that if you’re running a construction company, building houses every day, that you’re really focused on making that work and that the 401(k) … probably isn’t even crossing your mind. But there are a lot of options for them, and there’s a lot of help they can get, and it’s not that hard to put a plan in place and to operate it.”