The subject of retirement plans for small business employers and employees is one that can engender fear and frustration. For the most part, small business owners have much more to overcome to offer meaningful plans to their employees; as a result, those working for smaller companies often feel that the plans available to them—if they have one—are limited in scope and don’t exactly accommodate their needs. I’m sure there are local small business employees who are retirement planning in the Newport Beach area and feeling as though they are left to find their own way when it comes to saving for retirement.
So why can’t small businesses offer meaningful plans? Here are a three hurdles that they’re faced with:
- Limited purchasing power—small budgets for retirement accounts means that the small business is likely only able to offer the most basic of investment options.
- Fiduciary responsibility—Employers are responsible, to a degree, for their employees’ retirement plans, and that can be more than a little intimidating.
- The administrative hassles for offering meaningful retirement options can be a huge burden, especially when you’re doing something like…running a small business.
Well, if a few possible changes take place, those in the small business sphere may just have another healthy option at their disposal.
Multiple-Employer Plans (MEPs) have the potential to be a saving grace for those with previously limited plan options for retirement saving. These plans are attractive options to smaller employers because of their nature. They let two or more employers pool their resources, so to speak, multiplying purchasing power and allowing the parties to share the fiduciary and administrative burdens.
The limit that is making this not possible as of now is a set of rules from ERISA and certain tax laws:
- Common Nexus Rule: One such rule requires participating employers to share a “common nexus,” e.g. being a part of the same industry. This limit is responsible for a good number of small-business employers not being able to make the connection and offer a plan.
- The One-Bad-Apple Rule: This one is just what it sounds like. If one participating employer in the MEP breaks a tax law, the whole plan becomes disqualified. That requires a pretty high degree of trust on the part of those entering into a plan.
The good news for the pro-MEP camp is that there is mounting support for loosening these current structures—and a lot of experts are guessing that if the regulations are removed, interest and enrollment will continue to rise. This is a real benefit, considering that more than half of the 55 million people employed by a small business currently don’t have access to a work-sponsored retirement plan[1]. If the regulations change, these employees will likely benefit from an increase in options. If you’re employed by a small business and working on retirement planning in the Newport Beach area,regardless of current regulations, there are options available to you. Call Miramontes Capital today to get started on the plan for your future self.
[1] Bier, Jerilyn Klein. “MEPs Can Transform Retirement Industry.” Financial Advisor. Web. June 1, 2016.