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“A” Solution, But Not Quite “The” Solution

“A” Solution, But Not Quite “The” Solution

As speculation mounts over President Trump’s planned appearance in Charlotte tomorrow, the expectation is that the Retirement Enhancement and Savings Act of 2018 (RESA) will soon be signed into law. While Vestwell believes strongly in the spirit of the bill and what it’s trying to accomplish—making good retirement plans affordable and accessible to companies of all sizes—the bill fails to solve many retirement plan challenges.

Small businesses haven’t historically embraced 401(k)s out of concern for fiduciary liability exposure, litigation, fees, and administrative burdens. RESA turns to Multiple Employer Plans (MEPs) as a solution because MEPs allow small employers to pool together to share expenses. The belief is that small businesses will be more likely to offer retirement plans once they can offload some fiduciary responsibility and enjoy traditionally “large plan” costs.

Unfortunately, there are still some shortcomings in the bill that lead to missed opportunities and confusion. The main ones we’ve identified are around:

  • Fiduciary responsibility - While the bill states that fiduciary responsibility can be offloaded, some would argue that is already the case today with a 3(38) offering. It is unclear whether the new bill would offload liability of all responsibilities—such as the responsibility of the employer to select an un-conflicted provider—but doing so would require a re-write of ERISA laws rather than just a notation in a new provision. In addition, it is not clear who—if not the employer—is responsible for protecting the plan against conflicts of interest, prohibited transactions, and other such obligations.
  • Lead participant employer role - What exactly is the role of the lead participant employer? How do they get selected and evaluated? Are they compensated, and if so, how much, and who decides? And how does insurance account for this unique role? Without a clear outline of the role, it is hard to envision the way companies decide to —and continue to—work together.
  • General retirement plan shortcomings - Unfortunately, a more “fair” cost doesn’t give employers a better understanding of what they’re getting with a retirement plan. In many cases, fees are buried, service offerings are unclear, and administrative burdens are cumbersome. The bill does not address any of these challenges.

The good news is that options exist to better support small businesses even without RESA. The advent of tech-forward retirement platforms (like Vestwell) bring solutions to the issues of cost, fiduciary responsibility, administrative burden, and transparency. They also address many of the challenges of RESA. Because a modern-day retirement platform doesn’t require the pooling of resources, businesses can enjoy the custom plan designs and pricing tailored to their workforce rather than compromising based on the MEP's collective needs. And since technology automates many expensive processes, employers are afforded economies of scale comparable to (if not better than) what an MEP would bring. As a result, a company can benefit from the personalization, strong customer service, competitive pricing, fiduciary oversight, and transparency that all businesses and their employees deserve.

So, while it is our mission to support the healthy retirement of all Americans, we want to ensure they don’t just have access to a plan…but that they have access to the right one.