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Financial Planning, Retirement, Small Business

401(k)s, Small Businesses, And Multiple Employer Plans

3/27/18 8:00 AM

iStock-629386336.jpgSixty-one percent of defined contribution (DC) plan participants recently surveyed by BlackRock said that they feel “on track” to retire with the lifestyle they want. Nearly half (49 percent) of these same respondents said that the strong performance of their investments is a major factor behind their retirement confidence. That is up 20 percentage points from just two years ago and therefore suggests that many plan participants are likely not too troubled by recent stock market turbulence.

Concerns remain, though, as 51 percent of respondents said that they find it difficult to “know how my retirement savings will translate into monthly income at retirement,” and 48 percent said that “the thought of having to generate my own retirement income worries me.” More broadly, 70 percent of surveyed participants believe their generation will not have the same level of old-age income that retirees from earlier generations were able to enjoy. Many employers share such concerns, as evidenced by the 54 percent of surveyed plan sponsors that said they expect half of their participants will be forced to postpone retirement due to a saving shortfall, up sharply from 34 percent in 2016. A majority of these sponsors said that they have responded by making some sort of improvement to their plan’s default settings in the last two years.

Although encouraging, it is likely that mostly large firms are making such constructive plan changes. Just look at the new study by the Investment Company Institute (ICI) which found that more than half of large 401(k) plans in the sample (more than $100 million in plan assets) automatically enroll their participants, compared to just one in five for plans with $10 million or less in plan assets. Similarly, an earlier report from The Pew Charitable Trusts found that many surveyed small employers would like to offer a variety of retirement savings options to their workers but feel that they face numerous barriers to doing so. Thirty-seven percent of owner respondents, for instance, said that offering a retirement plan is too expensive to set up, and 22 percent cited a lack of organizational resources as another hindrance.

Not being able to offer workers retirement benefits as attractive as what can be found at big corporations can hinder the ability of smaller firms to compete for top talent, but one thing that is helping level the playing field is the multiple employer plan (MEP). Indeed, MEPs allow two or more employers to participate in employee benefit plans that are maintained as a single plan. This pooling of plan assets can lead to a significant reduction in the barriers to entry (costs) associated with offering a high quality defined contribution plan, and lower administrative burdens and reduced fiduciary responsibilities are possible as well. More information on the advantages of MEPs can be found here, and additional efficiencies are available by working with a professional employer organization (PEO).



Sources: BlackRock, NAPA, ICI, BrightScope, Pew Charitable Trusts

Post author: Charles Couch

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