Nearly one third of small businesses say they may eliminate their employees’ retirement plans if new fiduciary rules proposed by the U.S. Department of Labor go into effect this summer, says a study by the U.S. Hispanic Chamber of Commerce and Greenwald & Associates, a research firm.
The Department of Labor is expected to expand its rules on what retirement plan sponsors are allowed to tell employees about 401(k) plans and IRAs. It could force some small employers to hire outside consultants for assistance, according to the Hispanic Chamber of Commerce.
The survey included 607 retirement plan decision makers at businesses with up to 500 employees. Thirty percent say it is at least somewhat likely they will eliminate the retirement plans currently available to employees. In addition, 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 adopt a plan, the survey says.
“The findings presented here show that the DOL expansion of fiduciary status 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,” says Javier Palomarez, president and CEO of the U.S. Hispanic Chamber of Commerce.
The regulatory change by DOL expanding fiduciary status would limit the retirement plan assistance that some financial professionals can provide to small-business clients, assistance that is valued by small businesses, according to the survey. The expected change would put limits on conversations with small businesses about how to select and monitor the investment options available under a plan, and how those investments are performing, Greenwald and Associates says.
More than 40 percent of small businesses without a plan say the regulation would be at least somewhat likely to cause them to charge participants higher fees or not offer matching contributions.
More than 80 percent rate the job that their current advisor or record-keeper 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, the survey says.
“The unintended consequences of this regulation would hurt those who can least afford to adapt to the changing landscape: the smallest businesses that most need the advice of financial professionals,” Palomarez says.
“This research strongly indicates that if small companies were restricted from getting investment advice from advisors affiliated with their plan providers or record-keepers, significantly fewer would offer plans and many of those who offer plans would offer less generous plan benefits to their employees to cover the cost of getting an outside advisor,” says Brian Perlman, senior vice president and financial services practice leader for Greenwald & Associates and author of the report.