Fiduciary concerns challenge plan sponsors, despite 401(k) savings improvements

While even the smallest of employers are reporting increased success in their participants’ savings rates and ongoing recruitment benefits in offering a workplace retirement plan, the fiduciary burdens of administering those 401(k) plans are starting to add up for many plan sponsors. That’s leading to suggestions that a relationship with a financial adviser can make life a lot simpler for everyone involved.

In 2013, businesses with less than 20 employees averaged a 7.5% savings. The larger group –employers with more 5,000 employees – tallied an average 6.7% savings across all industries, according to new analysis of more than 9 million U.S. employees from the ADP Research Institute.

Expecting to ride the coattails of these high saving rates, approximately nine plan sponsors in 10 report that their 401(k) helps with recruitment and retention, according to independent research from Guardian Insurance & Annuity Company.

“By offering access to a workplace retirement plan, small business owners can compete against larger companies for talent,” says Douglas Dubitsky, vice president at Guardian Retirement Solutions. “As the economy improves and hiring increases, ensuring that your small company has a competitive benefits package will become even more important in attracting good candidates.”

But almost one third of small business plan sponsors surveyed in Guardian’s research report confusion over their fiduciary responsibility. And approximately one in five plan sponsors were not satisfied with the current fiduciary support in place, according to Guardian’s Small Plan 401(k) RetireWell Study.

“Small business owners wear many hats and really rely on the expertise of external financial professionals to help design, manage and implement their workplace retirement plans, as well as provide fiduciary support,” Dubitsky tells EBN. “Larger organizations may have much of that expertise in house.” 

Joseph Matthews, a senior investment management consultant at Morgan Stanley, agrees that small business owners can benefit from the financial professional relationship.

“The financial consultant can help the administrators maintain ERISA compliance but also can help how plan participants behave,” says Matthews. “You’ll find that larger companies will have tools online that assist employees. The small mom-and pop shop is not necessarily going to have that infrastructure that’s needed for plan participants get the most out of the plan.”

Also See: Retirement advisers help plan sponsors get fiduciary job done: study

While the 450 executives Guardian surveyed report some level of satisfaction with their retirement plan options, the company finds that 61% of small businesses that work with a financial professional are “very satisfied” with their 401(k) plan. Dubitsky adds that financial professionals can “bring together comprehensive solution that unifies the talents of a TPA [third party administrators], fiduciary support providers, record keepers and other service providers to help business owners is vital.”

Also See: Financial woes spell trouble for workplace productivity

For those small businesses not yet exposed to retirement plan administration, more than half surveyed in the small-plan market disclose concern over costs and expenses as a deterrent, according to Guardian.

“Fiduciary responsibility does not have to be a deterrent as there are many solutions and services available that offer support to small business owners to help mitigate fiduciary risk,” Dubitsky explains.

Also See: Retirement confidence rebounds from five-year lull

Financial consultants can help structure a plan to “make it a little less painful than a root canal,” Matthews tells EBN.