Last week the smart folks in Washington D.C. suddenly discovered small business owners have a tendency to avoid creating retirement benefit plans. No doubt this concerned them because, without the old reliable 401(k) plan to sustain them, retiring Americans will come knocking on Uncle Sam's door looking for that promised safety net.
Being that Uncle Sam can't go knocking on Aunt China's door forever, the prospect of future generations needing government to fund their retirement means Uncle Sam will have to pay back all those IOUs he has been busy stacking up in the Social Security Lock Box.
In the labyrinth known as ERISA regulations, small business owners only find themselves more discouraged when considering whether to start a retirement plan (see "Exclusive Interview with Ary Rosenbaum: The 3 Biggest Compliance Obstacles for 401(k) Plan Sponsors," FiduciaryNews.com, March 13, 2012). Indeed, all the variant rules and regulations of ERISA plus other requirements stemming from the Uniform Prudent Investor Act and the 2006 Pension Protection Act seem like so many mines hidden in an alluringly fertile field.
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Unfortunately, the only thing that appears to grow out of that field is more regulations. It doesn't matter if these new rules—like the DOL's Fee Disclosure Rule—actually help investors. No, to the business owner and plan sponsor, it matters that these new rules only add to their liability. Take the aforementioned Fee Disclosure Rule, for example. With it, the plan sponsor will now be held liable for failing to provide accurate fee disclosures to participants, even if that failure can be traced to the underlying service provider.
Worse, the DOL is now expecting the plan sponsor to act the role of the hatchet man and fire any service provider who fails to properly disclose fees, lest that plan sponsor risk being held accountable as an accessory.
Don't get me wrong. I like the new Fee Disclosure Rule. I think we need the new Fee Disclosure Rule. I firmly believe both plan sponsors and investing employees will benefit from the new Fee Disclosure Rule. I applaud what the DOL has done and I wish they keep up this aggressive stance. Why? Because they've got the rogue service providers on the run. These folks, not the plan sponsors, are most responsible for the deficiencies in the 401(k) arena. They, not the plan sponsors, should suffer the most from the regulatory burden.
But this is not to say the plan sponsor doesn't have any liability. There will always be some liability on the part of the company, but that's just the part of doing business. After all, if they didn't take the risk, why would we brook them earning those big profits?
Oh, wait. I forgot. Certain partisans have deemed it politically justifiable to cause the nation to relive the class wars of so many generations ago. So, as a country, we have returned to that quaint era when us po' folk can pillory the robber barons. Sure, we want to enjoy the fruits of their risk by having better products, more convenience and an overall improved lifestyle.
But lo to those makers who dare to cash in on their innovations to reap the rewards of even better products, even more convenience and an overall greater lifestyle than us. Banish them all to the land of confiscatory tax rates!
Such is the calculus of the small business owner. For nearly 40 years Washington had entered into a pact with the entrepreneur. "You provide more jobs and more benefits," said the Voice of the People, "and you can accumulate that and much more for yourself." Alas, happy days are gone again and the rewards increasingly fail to justify the risks.
That's why small businesses on the whole tread carefully before entering the mine field of ERISA. But we don't need more laws to address this. We need streamlined regulations—ones that don't require a legal degree to decipher. The idea of a "Safe Harbor," like we find in ERISA, should be more then norm and less the exception. Come to think of it, I already proposed a better idea. It's called 401(k) 2.0.
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
