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.
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Over the past decade, several high-profile 401(k) fee lawsuits and DOL efforts to implement a fiduciary standard for professional investment advice have put 401(k) fiduciary responsibility in the national spotlight. Unfortunately, this attention has done little to help employers understand and meet their 401(k) fiduciary responsibilities. This confusion is a big problem because employers risk personal liability when these responsibilities are not met.
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. I am confident that percentage is higher than average because most 401(k) providers don’t give 401(k) sponsors that opportunity. Instead, they force sponsors to pay at least a portion of their 401(k) admin fees from plan assets by limiting plan investment options to funds that pay them hidden 401(k) fees like revenue sharing and/or annuity wrap fees.
Two weeks ago, Equifax – one of the country’s biggest credit reporting agencies – announced that its systems were hacked by cybercriminals, exposing the Social Security numbers, birth dates, addresses, and driver's license numbers of 143 million Americans. Unfortunately, this huge data breach was not unprecedented. The personal information for 1 billion Yahoo users and 145 million eBay users was exposed in 2013 and 2014, respectively.
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 employer-sponsored 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. Because workplace retirement plans make savings – and in turn, a comfortable retirement – dramatically more likely for workers, increasing this percentage is essential.