Albany Times Union (Sunday)

Small businesses may get retirement plan boost

Technology may lessen need to bundle plans

- By Janet Kidd Stewart Tribune News Service

As average 401(k) balances reach record highs, how does yours measure up?

For those working in small businesses, chances are the news isn’t great. Big companies typically are the ones with the most investment choices, the lowest fees and the richest match.

A congressio­nal bill and a recent White House directive aim to give a leg up to smaller plans by making it easier for them to band together, command better pricing and ease administra­tive burdens. The measures would make other changes, including altering the rules around required minimum distributi­ons to reflect longer life expectanci­es.

While the RMD reprieve will likely get universal approval from wealthier retirees who would rather not pay taxes on distributi­ons they don’t actually yet need, the idea for smaller retirement plans has some significan­t caveats.

It would smooth the way for unrelated groups of companies to form a single 401(k) plan. Currently, among other obstacles, these employers would face disqualifi­cation of their plans if one member of the group is found to be violating compliance rules.

But jumping into a pool with other employers raises a host of questions about who is ultimately responsibl­e for making sure the plan is working in employees’ best interest, notes Allison Brecher, general counsel for Vestwell, a new platform that provides 401(k) services.

The company contends that technology is already stripping significan­t costs out of plan design and maintenanc­e, without the need for bundling participan­ts.

Policing the plans is a valid concern, but Alicia Munnell, director of the Center for Retirement Research at Boston College, is skeptical that many small businesses will even get that far.

“We’ve done a lot to make cheap plans for small businesses and the needle hasn’t moved. A lot of these firms are just so focused on getting up and running and their workers are saying they just need cash,” making it very difficult to get plans started, she said.

She does think the current plans’ backing by the financial services industry could help carry the ideas further than previous proposals, including an Obama administra­tion program to encourage savings through Treasury bonds (now scrapped).

But you don’t have to wait for any of these ideas to come to pass.

If you’re a small business owner, look into whether a SIMPLE-IRA, a Simplified Employee Pension Plan or a self-employed 401(k) plan might work for your situation.

If you work for a company without a retirement plan, open a Roth IRA or a traditiona­l IRA. They have lower contributi­on limits than workplace plans, but it’s a start. Just be aware you’ll need to save more in taxable accounts to make up the difference.

How much to save if money is particular­ly tight? Borrow a page from big employer plans by starting with a small percentage of pay and ramping that up each year or each time your pay increases.

The big advantage large plans have over small ones — other than a company match — is their ability to automatica­lly escalate contributi­ons, making savers barely notice they are putting away more each year. Replicate that small piece and you’re on your way.

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Getty Images

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