When it comes to a 401k, more savings for more employees is certainly better, and small businesses certainly can and do sponsor thriving retirement plans. Nonetheless, bigger 401k plans tend to have some built in advantages, though diligent fiduciary oversight to ensure participants are benefitting remains a must.
Think Like Costco?
Indeed, it is generally true in business that higher volume can lower costs, especially when scale is achieved and leveraged efficiently. As Christopher Carosa of Fiduciary News has found, the product options provided to large plan sponsors by service providers generally, have lower costs:
Plan service providers often offer an array of products. The lowest cost options are generally limited to high volume customers. In the 401k world, that means bigger plans.“Larger plans have access to lower cost share classes. Some mutual funds do not have ‘retirement share classes,’ usually leaving retail shares and institutional shares as investment options,” says Brian Seelinger of Knox McLaughlin Gornall & Sennett, P.C. ….“Retail shares are normally expensive with a large immediate fee (load) and higher annual expenses. Larger plans have more assets and can potentially cross the asset threshold (usually in millions of dollars) for institutional shares which have no load and lower internal fees. This is dependent on proper management and oversight of the pooled plan.”
Of course there are some costs that are fixed, and can’t be negotiated, but here too, as Carosa points out, bigger plans have an advantage: “Relatively fixed costs are the same no matter the size of the plan. Bigger plans can absorb these costs over a larger asset base, meaning the per participant cost is lower.”
Competing As a Smaller Business
Despite the associated costs and responsibilities, employer sponsored retirement plans are vital to the success of small businesses when competing to recruit and retain talented employees. Accordingly, Kevin Busque, co-founder and CEO of Guideline, a 401(k) retirement platform for small businesses, advises owners to carefully dig into their benefit strategies:
It’s important that employers re-evaluate the retirement benefits they offer—not only to make sure that they’re aligned with the needs and preferences of their workforce, but for recruiting new candidates as well. At the very least, I would suggest employers review their fee schedule. I recommend a comprehensive approach that includes taking inventory of current benefits, assessing the cost and use rates of each benefit, and evaluating employee satisfaction….It’s crucial to understand the workforce’s changing priorities and demographics….
To reap the competitive advantages of “bigger,” it can be useful for smaller plans to explore the opportunities offered by Pooled Employer Plans, as Mary Jo Innis, president & CEO at The R.O.W. Group points out:
Small businesses can benefit from Pooled Employer Plans (PEPs) by accessing lower administrative costs, more robust investment choices, reduced fees, and participant education tools, which are typically experienced by larger 401k plans….Small businesses may not have the resources and benefits to compete with large corporations due to their smaller plan assets, which result in higher costs, less investment choices, and poor employee participation. As a small business owner, it is important to consider implementing a retirement plan benefit in order to recruit and retain the best talent, which is crucial for remaining competitive in their respective industry and market.
The Path To Success: Security
Not surprisingly, the Employee Benefit Research Institute has found that retirement confidence is “more than twice as high among those with retirement plan coverage than those who lack it.” Clearly, plan sponsorship gets results, but, like many good things, plan sponsorship does come with serious, inherent, risks. In fact, under the high standards of ERISA, plan sponsorship can result in being held personally liable for oversights. That’s why it’s best practice for all sponsors to protect themselves, and Colonial Surety Company makes coverage cost effective for sponsors of plans big and small.
When armed with our cost-efficient Fiduciary+Cyber Liability Insurance, if you face claims of alleged or actual breaches of duty in connection with the employee retirement plan, you’ll be protected with defense costs and penalty limits up to $1,000,000. You’ll also receive:
- Reliable Defense: If a claim alleging fiduciary breaches surfaces, attorneys will be ready to defend you, your company and your personal assets.
- Cybersecurity Protection: A data breach can be a nightmare, especially if it also spirals into a fiduciary breach because of failure to comply with DOL guidelines. Our coverage addresses DOL recommendations–including notification and response services for the business–and retirement plan.
- Fast and Easy Coverage: Get a quote, purchase, and download your policy in minutes, all online.
Ready to let us protect you? Take a moment and get your quote for affordable and complete coverage for plan sponsors Fiduciary and Cyber Liability Insurance
Colonial Surety was founded in 1930 and continues giving customers the assurance that they, their businesses, and their clients are safeguarded with the right surety and insurance products at all times. We are a direct and digital insurer offering products through an online platform supported with exemplary customer service. We give customers a simple, direct, and instant service that takes the pain out of buying insurance and bonds. Colonial Surety is licensed in every state in the U.S., rated “A” Excellent by A.M. Best, and listed by the U.S. Treasury as an approved surety.