Small business owners don’t always have the resources or the know-how to establish a 401(k) plan for their employees. Many believe it is too costly and others think it will be too much administrative work when they already spend all of their daylight hours running their business.
One of the biggest reasons small businesses don’t typically offer retirement plans to their employees is that “retirement plans are sold and not bought,” says Stig Nybo, president of U.S. retirement strategy for Transamerica Retirement Solutions.
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Most small businesses don’t have time to shop for a retirement plan. It’s not top of mind for them when they are trying to keep their businesses running, he says. It’s only been in the past year or so that the retirement industry has really started targeting small businesses with low-cost, easy retirement plan options. Many of them are so-called robo advisers, plans that do everything for an employer and plan participants online, through user-friendly interfaces.
Many studies have shown that there is a retirement savings gap in the U.S. “For the average American, the only place they are able to amass any wealth is in their workplace retirement plans,” Nybo says. “They are effective when used properly.”
Transamerica Retirement Solutions launched a new retirement plan option for small businesses this month called FastTrack Retirement Plan, which gives plan participants access to some of the same benefits already offered at larger companies, like quality investment choices and a service model that includes access to third-party administrators.
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Employers can start the plan with as little as $50,000 in first-year deposits or plan assets and the plan offers a pre-selected menu of diversified investment choices, selected by Mesirow Financial Investment Management, Inc., a provider of 3(21) fiduciary investment advice.
Under the Employee Retirement Income Security Act, 3(21) advisers help plan sponsors choose their investment lineup and, in doing so, share a small piece of the fiduciary responsibility.
"Larger companies are more likely to have established retirement programs for their employees, but that benefit is not as certain for employees of smaller companies. FastTrack is designed specifically for small companies that want to provide a quality retirement program for their employees," says Nybo.
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The plan administration model includes expertise and day-to-day assistance from local third-party administrators, along with easy enrollment for employees and automated plan adoption features. Transamerica's service representatives are available for employers, their employees and third-party administrators.
Nybo says he believes the private sector will ultimately provide the solution to Americans not saving enough for retirement, not state-run retirement plans or the federal government’s recently launched
“It’s not an indictment of all the other efforts going on. …. I think those things can be helpful but I think innovative solutions in the private sector will really solve the problem,” he says.
Transamerica is a champion of multiple employer plans, which he points out are a solution that was devised by private industry.
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“They are a very efficient way to serve the small plan marketplace. There is a lot of innovation and discussion going on in Washington around multiple employer plans and how to expand the usage of multiple employer plans,” he says.
The federal government’s myRA, first announced in President Barack Obama’s State of the Union address in 2014, was rolled out nationwide earlier this month. The plan, which was developed by the U.S. Department of the Treasury, is an option employers can take advantage of if they feel they don’t have the time or money to offer a 401(k) plan. With myRA, employers don’t have to administer employee accounts, contribute to them or match contributions.
Paula Aven Gladych is a freelance writer based in Denver.
