You'd think it was the end of the world as we know it. Policy wonks from inside the Beltway insist there's a problem with defined contribution retirement plans. As proof, they point to government statistics that show more a full third of American workers do not have access to a corporate retirement plan. So they cobble together some “new” retirement plan contraption Rube Goldberg would envy. They insist this will answer our retirement dreams.
If you look deeper into the government's own data, though, you'll see not a problem, but an opportunity. While it's true only 66 percent of private industry workers have access to retirement plans, the greater truth is 9 out of 10 workers employed by a company with 500 or more employees have access to a company sponsored retirement plan. The issue lies on the other end of the spectrum. If you work for a company with fewer than 100 employees, you've got no better chance of having access to a corporate retirement plan than you would flipping heads on a coin. Therein rests the opening for enterprising retirement service providers.
This is the region of the retirement plan market traditionally held by the insurance industry and their group plans. With the burgeoning business of class action suits involving hidden conflict-of-interest fees, these conventional providers may be questioning whether the revenues are worth the risk. Add to this the growing regulatory trend to level the playing field and enforce some sort of universal fiduciary standard on all retirement plan providers, and you have the makings of an unsustainable business model.
Unlike what some are saying, no market will be left unserved. A few are making designs for a government sponsored takeover of this lucrative market segment, but why throw taxpayer's money into the investment required to build the infrastructure to support a new government venture? After all, you've got a huge private industry fully willing to spend its own money. There are already a handful of service providers who claim they can offer full scale retirement plans to the small business market at costs approaching the same level as those paid by much larger firms.
And this is even before we get functional and practical clarity on the use of open MEPs by private industry. With the president finally behind this bipartisan effort, who knows what fantastic offerings will make their way into the retirement benefits offered by small businesses to their employees? The competitive market is a great cauldron of creation. Retirement plan products that can simultaneously address the oversight concerns of regulators, the overburden concerns of employers, and the overcomplexity concerns of employees will open up a new gold rush for the industry. Once this Holy Grail of retirement plan accessibility is fashioned, it doesn't take a rocket scientist to envision retirement plan accessibility for workers in smaller companies launching to the same heights found in larger companies.
Lack of retirement plan accessibility doesn't require new plan vehicles, just a better distribution mechanism for existing plans.
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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).
