Going “Bold” on Safe Harbor Plans
“They have pre-wrapped sausages, but they don’t have pre-wrapped bacon.”
“Well, can you blame them?”
“Yeah!” - Barenaked Ladies, from “If I Had $1000000”
We have safe harbor plan provisions for contributions, but we don’t have them for employee education. Well, can you blame them?
I came across this article from John Wasik posting at Forbes.com. He makes some excellent points. The one that got me thinking was his proposal for 401k reform to include this:
“The employer must provide explicit, customized education to [employees] on the best allocation of funds for your age, risk tolerance and job security.”
Sounds terrific. But what if it became law tomorrow? How would employers be able to implement help with 401k? Who would (or could) set the standard for all to follow? How explicit? How customized?
Here’s the core issue: Employers simply aren’t providing employee education (help with 401k). Instead they are effectively outsourcing the requirement to financial advisors or simply doing nothing. And no one is making employers accountable.
My proposal is to “go bold” and extend the safe harbor concept to employee education. It works well on plan contributions. The basic concept is to incent the employer to make a contribution to employees in return for exemption for discrimination testing. Win-win.
Here’s how it would work.
Incent the employer to provide education to employees by giving a modest tax credit ($1,000 would go a long, long way for most small businesses) to purchase and distribute education chosen by the employer. No government mandate, just an incentive. And the market already has the solution, it’s just not being implemented.
I have one caveat. We need to ensure that education providers are not profiting from the advice given. Simple. The provider either provides education as a stand-alone service, or gets a fee for the service performed regardless of the value of investments in the plan, or the investments recommended. There are thousands of financial advisors and educational firms that already play by these rules. This change would actually even the playing field in my opinion.
Congress (!) could make this happen even in the present state of gridlock. (I can dream, can’t I?)
By the way – you can buy pre-wrapped bacon now. Aren’t markets grand? Tell me what you think.
About Greg Carpenter
Greg Carpenter founded Employee Fiduciary in 2004. With 29 years of experience in accounting and finance, Greg has brought his expertise to a variety of advisory, senior and executive management roles. Greg has worked for a national accounting firm, a Fortune 500 plan sponsor, a major brokerage firm, and he served as the CEO of a major 401k TPA firm. He is a CPA and earned his BA from Yale and his MBA from The University of Chicago Booth School of Business.