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Nearly 30% of small businesses with a retirement plan say they would likely drop their plan, and nearly half would likely eliminate their employer contribution, if the Department of Labor's reproposed redefinition of fiduciary under the Employee Retirement Income Security Act goes into effect, according to a survey released Tuesday.
The Greenwald & Associates telephone survey was commissioned by the law firm Davis & Harman LLP "on behalf of financial services organizations that provide retirement services to millions of Americans," according to Greenwald, and co-sponsored by the U.S. Hispanic Chamber of Commerce.
Researchers polled 607 retirement-plan decision makers at businesses with up to 500 employees and found that some 30% of U.S. small businesses say it is “at least somewhat likely” they will eliminate the retirement plans currently available to employees.
In addition, the survey found that almost half the small businesses that do not have a plan but are considering adopting one say that the regulation would make them “less likely” to do so.
A DOL “expansion of fiduciary status” under its planned reproposal “will only impede the ability of small firms to offer their employees retirement-plan accounts, thus hindering American workers from saving for a reliable future,” said Javier Palomarez, president and CEO of the U.S. Hispanic Chamber of Commerce, in releasing the report.
Phyllis Borzi, assistant secretary of labor for DOL’s Employee Benefits Security Administration, has stated that a redraft could be released as soon as August, but noted at a recent event in Washington that Labor Secretary Thomas Perez has the final say on the release date. The redraft would be subject to further comment and revision before a final rule would take effect.
Perez told a Senate Appropriations subcommittee in mid-April that the redrafting of the proposal “has been slowed down at my direction significantly because we wanted to take a step back [to] listen and learn from everyone.”
Nearly 50% of small businesses polled that had a plan said that it was “at least somewhat likely” the DOL regulation would result in lower matching contributions, fewer investment options and higher fees for participating employees.
More than 40% of small businesses without a plan said the regulation would be “at least somewhat likely” to cause them to charge participants higher fees and not offer matching contributions.
Yet another finding was that more than 80% of the small businesses rate the job that their current advisor or recordkeeper does as “very good or excellent” when it comes to investment selection and more than 90% are at least somewhat satisfied with the plan’s investment options.
Kent Mason, a partner with Davis & Harman, told ThinkAdvisor that “when a financial institution talks to a small business about the possibility of starting a retirement plan, a key issue for discussion is the fact that the small business needs assistance with respect to the selection and ongoing monitoring of a menu of investment options to offer employees.”
Under current law, Mason continued, “the financial institution can provide assistance to the small business in that regard without the financial institution becoming a fiduciary. However, under the DOL’s fiduciary rulemaking, “the financial institution would become a fiduciary by reason of providing any assistance. As a fiduciary, the financial institution would be prohibited from providing that assistance because of DOL’s prohibited transaction rules. So the financial institution would be prohibited from helping.”
The problem is that “most small-business owners do not have the expertise to do the former, which would expose them to liability if they go in this direction without expertise. So most small businesses would need to find an independent expert and pay that expert separately.”
Because finding and paying an independent expert is “costly and burdensome,” Mason said, “the result will be fewer plans. And the small businesses that do have a plan will have less money to spend on benefits because they need to pay the independent expert.”
Ken Bentsen, president and CEO of the Securities Industry and Financial Markets Association, said in reaction to the report that “unfortunately, as the study concludes, the DOL’s proposal could make it too costly for small businesses to maintain their employees’ retirement plans at the same level, with some saying they will drop the plans entirely and almost half stating they will eliminate the employer contribution - a major incentive for saving.”
While Bentsen said DOL’s actions “are well-intended, the reality is that the outcome of its proposal will likely do more harm than good at a time when Americans cannot afford to lose a single dime of their future savings.”
Read the full Greenwald report on the survey.
Check out DOL Fiduciary Plan Could Hurt Workers Changing Jobs: Study on ThinkAdvisor.