Small business partnerships could be retirement’s silver lining for many

As the country celebrates small business week, a time to appreciate the contributions these employers give to the economy, some debate how small companies can best give back to their employees’ financial wellness and, ultimately, retirement readiness.

Multiple employer plans could be a more viable option for smaller employers and service providers, according to new research released today from Prudential.

Not to be confused with labor unions’ jointly trusteed multi-employer plans, multiple employer plans are adopted by two or more unrelated employers who are unable to afford the responsibilities of sponsoring a plan themselves.

Also see: Health plan changes put added pressure on retirement savings

In today’s market, nearly 50% of employees at small businesses with fewer than 100 employees don’t have access to a workplace retirement plan. “Workplace access is a growing problem and most deeply felt by employees working at small companies,” said Bennett Kleinberg, vice president of institutional investment solutions at Prudential, and a co-author of the report.

Small businesses cite three main reasons for not having retirement plans in place: financial costs, administrative burdens and fiduciary responsibilities. “Something like a multiple employer plan could be [offered] by small employers across the board, “he adds.

Multiple employer plans are also strongly supported, holding bipartisan support in Congress as well as strong backing from the Chamber of Commerce and industry.

“While a variety of solutions are possible, there appears to be a growing consensus that expanding multiple employer plan access could play a significant role in bringing retirement savings opportunities to millions more working Americans,” added Robert Doyle, Prudential’s vice president of government affairs and another coauthor of the report.

Also see: Employee savings buoyed by better plan participation

Prudential’s data outlines a number of features multiple employer plans could incorporate, including:

• Automatic enrollment and escalation of employee contributions.
• A lifetime income solution among the plan’s investment and/or distribution options.
• Streamlined administration through standardized plan design.

Unfortunately, some multiple employer plans do share one disincentive, known as the “bad apple” rule.
“The failure of one participating employer or the failure of the plan itself to satisfy a qualification requirement will result in the disqualification of the plan for all participating employers,” according to IRS regulations.

Also see: Employers assuming more responsibility for employee financial wellness

“You want every apple to be responsible, one bad apple can ruin the plan,” said John Kalamarides, senior vice president, institutional investment solutions at prudential, and the third author of the report.   

Despite this, Kalamarides anticipates a push for industry adoption of multiple employer plans.

“We are at a really neat turning point for industry, he said. “We have a marketplace that works for medium and large companies and there is growing industry and Congressional consensus on how to bring that success to small employers and the 55 million people they employ to reap in all the benefits of saving.”