401ks are some of the most important retirement plans that are available to employees in 2019. And there is an important question to ask: are 401ks going to be able to be offered by small business owners easily in the near future?
The answer is… maybe. It’s not simple, and as far as we can tell, it’s not cheap — especially if you have fewer than 20 employees.
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The New U.S. Department of Labor 401k Rule
What is it?
Well, it broadened the definition of employer associations. On paper, the rule makes it easier for small businesses to group together to offer 401(k) retirement plans. This is done through what is called an Association Retirement Plan, ARP for short. Wow, that sounds great, you may say. But, how are we going to group together? Who’s going to foot the bill or do the work? Ah, and there’s the rub. Like most of the proposals from this Administration, it’s big on words but benefits only a few.
What does it mean to us?
Let me share our story. Like most small businesses, we want to offer healthcare and retirement benefits to our employees, but we can’t afford it. When we heard about this rule, we were encouraged. We thought, awesome, great, let’s check this out. We researched the NYC area for business groups and open plans, thinking surely someone is going to jump on this. What did we find?
Yep, nothing. We found myriad Professional Employer Organizations. But they’ve been around for years, as has the Chamber of Commerce. So, we were left with the same choices that we had before.
Professional Employer Organizations (PEO)
What are they?
PEOs have had a somewhat rocky history. While there are plenty of reputable ones. There were laws passed in several states in the early 2000s due to charges of impropriety. At least in New York State, you need to be registered with the State and comply with state regulations, such as requiring yearly financial audits, etc. While under this new rule, small businesses can technically create these groups, the overhead and the expense of running and maintaining one is significant. So, no real win there.
What does it mean to you?
If you want to offer healthcare, retirement, and other benefits, you can contract with a PEO. They do offer premiums that are better than you can get on the open market, but they generally charge about $1,000 – $2,000 per employee for their services. It does take the headache of complying with payroll taxes, withholding, etc., so for some, it may be worth it. One might expect premium costs to go down if more people enroll, but as of yet, we’ve not seen it.
Here’s brief video on what PEOs are and how they can help you
So, Will the Changes Help Us?
The sad truth is nearly 40 million employees, or roughly, 25% of the total workforce lack workplace retirement benefits. One would think that this executive order and subsequent rule would help. However, in the harsh spotlight of reality, that seems unlikely. While the option exists, the cost remains prohibitive. Going to a PEO was an option before as it will be after the rule takes place. It would seem that they, not us, are the real winners in this case. Again, this is no different from the myriad of actions by this political administration, (like Tax Cuts), that sounded great but only benefited a few.