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The Small Business Retirement Plan Journey: Challenges

By Neal Shikes, CRPC®


Although it is getting easier for small businesses to participate in Multiple Employer Plans (MEPs), the Plan Sponsor's odyssey for designing and maintaining a retirement plan is an arduous one. Clearly, a small business owner cannot leverage scale, generally in the form of assets under management, with regards to investments and recordkeeping costs.

Consider the possible interdependent variables that a Plan Sponsor/Investment Committee must equalize to manage a retirement plan for their employees:

  • Product (individual mutual funds, target-date/age weighted mutual funds, annuities, Collective Investment Trusts, Separately Managed Accounts, etc.)
  • Share classes
  • Expense ratios
  • Recordkeeping fees
  • Advisor fees/commissions

Most Plan Sponsors, including small business owners, just don't have the subject matter expertise to evaluate and review their own retirement plan:

  • Wealth management/portfolio construction
  • Analytics
  • Applying fintech
  • Functional expertise of regulation (ERISA, DOL enforcement, Trust Law, The Uniform Prudent Investment Act)

Christian Tateo*, CRPC® & AIF®, of the Bernstein Investment Group, is keenly aware of this challenge:

"With many small businesses, I encounter people who are brilliant in their own industry, but not knowledgeable at all when it comes to finance and retirement planning."

If that is not difficult enough, small businesses cannot deploy a team of experts to make sense of it because the owners and employees wear too many hats. Mr. Tateo sheds some light on this:

"In many cases the business owner, also, is the administrator of their company's plan. In other cases, it may be a controller or CFO, for whom day to day financial roles may include dealing with the bank, doing payroll, dealing with the medical insurance provider, or even just making sure the postage meter is working properly."

In general, most small business owners recognize that they need some assistance. However, since they are unaware of the proper skill sets it takes to manage a retirement plan, they tend to listen to the advice of the wrong people.

"Business owners, in many cases, have a bit of knowledge, due to their experience with the plan. In other cases, they have just done what their accountant told them to do even though that accountant has zero experience working with 401ks other than, perhaps, as a plan administrator for their own practice."

Generally, recordkeepers make a great deal of information and reports accessible to Plan Sponsors and Investment Committee Members. Mr. Tateo believes that this may lure small business owners into a false sense of security and de-emphasize the need to have a good advisor in their corner:

"The employees of small businesses may be unfamiliar with how to gauge one option versus another. If the advisor is downplayed or not injected into the decision process, an 'it's been taken care of' mentality develops. Is anyone really emphasizing or scheduling a proper review? Is anyone paying attention to the latest developments in that market demographic or the regulations?"

Fortunately, the situation is not dire, and the landscape is evolving. The best solutions are outcomes of a prudent process and this challenge is no exception.

* Christian Tateo has been a Registered Financial Services Industry professional for over 18 years and is a Chartered Retirement Planning Counselor, CRPC® as well as an Accredited Investment Fiduciary, AIF®. He currently holds the position of Retirement Plan Specialist/Financial Advisor with Bernstein Investment Group (www.bernsteininvestmentgroup.com) in Mineola, NY.

Neal Shikes has been a Registered Financial Services Industry professional for over 20 years and a Chartered Retirement Planning Counselor, CRPC®. He is also the "Willing Fiduciary" (http://willingfiduciary.com/) associated with Counsel Fiduciary LLC (http://counselfiduciary.com/) and the "Trusted Fiduciary" (http://www.trustedfiduciary.com) and principal associate for Thornapple Associates a provider of Expert Witness Services (http://thornapple.net/).


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