Retirement finance experts believe that Congress will reintroduce and pass in 2010 two bills--S. 1141 and H.R. 2167--that would require small- and medium-sized businesses to automatically enroll their employees into an IRA. The Senate bill, sponsored by Senator Jeff Bingaman (D-New Mexico), and the House bill, sponsored by Rep. Rich Neal (D-Massachusetts), are both called the Automatic IRA Act of 2007.
The proposed bills would extend retirement coverage to many who don't currently have any, but the logistics of putting a plan in place, not to mention the cost of so doing to small- and medium-sized businesses, has sent a frisson throughout that community, which according to Mark Gutrich, president of Denver -based ePlan Services, has been grossly underserved by the retirement finance industry.
Initiatives for the auto IRA first came to the fore in 2007, and have been in discussion since then. If the bills become law, employers at any company that is at least two years old and has 10 or more employees would be allowed to take a small amount from employee paychecks and deposit it into an IRA. Employers would select investments but employees would have the right to change mutual funds, or decide to pocket all their pay and skip saving altogether. The auto-IRA debate has been overshadowed by the frenzy surrounding healthcare reform, Gutrich says, but it will likely come back into the spotlight soon.
"Almost all the large players in the industry--the Fidelitys, Vanguards, and so on--are focused on large corporate accounts with bigger assets," Gutrich says. "With the new [proposed legislation], we're talking about 60 million potential new IRAs, which is huge and dwarfs the number of IRAs currently out there, but we're also talking about very small balances that don't necessarily interest the larger companies."
Catering toward the needs of the small business universe requires a dedicated effort, Gutrich says, and the ability to be able to structure, implement, and administer a retirement plan at an affordable price point, leveraging technology to do so. There are very few firms in the retirement finance industry that have the capacity to do this for small businesses, he says, but ePlan Services has been focused on bringing 401(k) plans to this niche since its inception 10 years ago, so "we can easily flip a switch and do auto-IRAs when we need to," he says.
"Small business owners are most concerned about the potential cost of putting in a plan and the idea that there is no one out there that can do it for them," Gutrich says. "This is a battle that we in the small business provider space fight every day, but despite the hassle factor that this could create, there are options out there for small business owners. From when they announce the [passage of the] legislation to when we could take [on] our first plan would be between three and six weeks."
Broad Commitment, Targeted Knowledge
Catering to the small business community requires a broad commitment and specific knowledge on how to provide the kind of service required, says Gregory Burrows, senior VP of retirement and investor services at Des Moines, Iowa-based Principal Financial Group, an industry leader in bringing retirement plans to the small business arena. Almost all aspects of small business retirement plans, not least their administration and record keeping, are different from what's required in the larger corporate space, he says. In light of that, "we have constantly reminded policymakers in our discussions with them that there should not be too much of a mandated burden placed upon small businesses," Burrows says. "While it might sound very simple to get an employer to make a payroll contribution, which is what the auto IRA would require, it might actually be very complicated for many companies out there that don't have electronic payroll services in place."
Burrows believes that the role of an advisor is crucial in the small business space because advisors help companies like Principal reach the small business . Advisors also play a fundamental role in serving the small business employer, and in order for a retirement plan to come into place properly, it's key that the employer base be strong, Burrows says.
"As we look at the proposed model, we need to do everything we can in the policy to help preserve all benefits that are in employer-sponsored retirement plans," he says. "The employer plays a very strong fiduciary role in the selection of the plan for their employees, and the employer needs to energize his or her employees to participate in the plan. Advisors enable us to reach employers, and as we continue to work with policymakers, we remind them of the importance of the advisor community."