Nearly 30 percent 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 percent 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 percent 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 percent 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 percent 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 percent 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.”