The Frugal Fiduciary Small Business 401(k) Blog
Get the latest industry news, deadlines and tips you need to know to help tackle your fiduciary responsibility needs.
There is no better scorekeeper in the active vs. passive fund debate than the SPIVA Scorecard. Published by S&P Dow Jones Indices, the semi-annual report measures the percentage of actively-managed funds that outperform their market index benchmark over specific periods of time, net of fees. I consider the SPIVA Scorecard a must-read for 401(k) fiduciaries.
According to the Government Accountability Office (GAO), about half of private sector workers in the United States are not covered by a workplace retirement plan. That’s a problem when you consider workers are 15 times more likely to save for retirement when a plan is in place. To expand coverage, Congress is considering ways to encourage plan sponsorship by employers. Two bills under current consideration are the Setting Every Community Up for Retirement Enhancement (SECURE) Act and Retirement Enhancement and Savings Act (RESA). They have similar 401(k)-related provisions. I have mixed feelings about them.
Subscribe to the The Frugal Financial Small Business 401(k) Blog and receive this free checklist for help in determing the best 401(k) plan design options and fit for your company.
In a May 2018 survey by The Pew Charitable Trusts, only 19% of small to midsize employers claimed to be “very familiar” with the expenses paid by their 401(k) plan, while 34% were “not at all familiar.” The remaining 47% said they were only “somewhat familiar.” These results are surprising when you consider employers have a fiduciary responsibility to pay only “reasonable” fees from 401(k) plan assets - and can be personally liable for restoring any excessive fees paid by participants.
According to AARP, Americans are 15 times more likely to save for retirement when they can do so by payroll deduction through a 401(k) or other workplace retirement plan. However, while most large businesses – companies with more than 100 employees – sponsor a retirement plan, 51 to 71 percent of small businesses don’t. In recent years, Multiple Employers Plans (MEPs) have been floated as a way to close this small business coverage gap. I disagree for a simple reason - MEPs fail to address the specific reasons why small businesses don’t offer a retirement plan today. I think single-employer 401(k) plans modeled after the Federal Thrift Savings Plan (TSP) paired with tax credits would do a better job.
On August 31, President Trump signed an Executive Order on Strengthening Retirement Security in America. In the order, the President made it the “policy of the Federal Government to expand access to workplace retirement plans for American workers.” While I fully support the policy – not enough workers are covered by a workplace retirement plan – I don’t think the order’s proposals will motivate more employers to offer a retirement plan. Other changes would be more effective.
In a recent study, we found 79% of our small business clients pay 100% of their 401(k) administration fees from a corporate bank account – not plan assets. This approach is popular because it can mutually benefit plan sponsors and participants. While the plan sponsor can deduct these fees as a business expense, plan participants can keep their amount invested – where they can grow until retirement.