New Rules Could Ease Small Business 401(k) Offerings

Summary

---

Podcast Summary: WSJ Your Money Briefing

Episode: New Rules Could Ease Small Business 401(k) Offerings

Air Date: October 23, 2018
Host: J.R. Whalen (Wall Street Journal)
Guest Expert: Ann Tergeson (WSJ Retirement Reporter)

---

Episode Overview

This episode tackles the persistent challenge faced by small businesses: the difficulty and expense of providing 401(k) retirement plans for their employees. Host J.R. Whalen and guest reporter Ann Tergeson discuss newly proposed rules from the Labor Department, which could make it significantly easier for small companies to offer retirement savings, thanks to the ability to join together in "multiple employer plans." The episode explains how the new regulations work, their potential impact, and the process ahead before they can take effect.

---

Key Discussion Points & Insights

The Challenge for Small Businesses Offering 401(k)s

• Barriers:
  • Cost: Small business 401(k) plans are usually much more expensive than those run by large companies (e.g., IBM).
  • Administrative Hassle: Small business owners, already stretched thin, are put off by the paperwork and responsibility.
  • Fiduciary Risk: Small employers fear legal risks if a plan goes wrong.
  • Result: About 50% of private sector workers lack access to any workplace retirement savings plan.
    • Ann Tergeson (03:25): “About half of private sector workers don't have access to a 401(k) plan at work or a retirement savings plan at work. And a large portion of that stems directly from the small company market.”

Policy Efforts and the White House’s Interest

• This issue has caught the attention of policymakers for years, but previous efforts have largely failed.
• In August 2018, President Trump issued an executive order directing departments to find solutions for small businesses’ retirement plan challenges.
  • Ann Tergeson (04:00): “At the end of August, President Trump issued an executive order instructing various departments... to see what they could do about some of these issues.”

Details of the New Proposed Rules

• Main Solution: Multiple Employer Plans (MEPs)

  • Allows small businesses, even from different industries (as long as they join the same business association, like a Chamber of Commerce), to band together and sponsor a shared 401(k) plan.
  • Benefits:
    • Scale → Lower Fees: As more companies and employees join a plan, negotiating power increases and administrative fees decrease.
    • Administrative Burden Shared: An association, not the individual employer, handles most paperwork and compliance tasks.
    • Fiduciary Responsibility Reduced: Employers are less at risk for legal repercussions if something goes wrong with the plan.
    • Ann Tergeson (04:35): “So the idea then is... small businesses can join together and offer a plan together. So the advantages of that are twofold. One is that... you can negotiate lower fees... It would also take what's called the fiduciary responsibility in large part off of that employer as well.”

• Customization & Flexibility

  • Employers could still decide individually whether to offer matching funds.
    • Ann Tergeson (05:43): “If a whole bunch of employers joined together to offer a plan and one wanted to offer a match and the other didn't, they could each do what they wanted.”

• Expansion Beyond Previous Rules

  • Previously, only very closely related companies could join together. The proposal would broaden eligibility to more business associations.

Timeline and Next Steps

• Process:
  • Proposed rules released October 22, 2018.
  • 60-day public comment period.
  • Labor Department will review feedback and potentially revise before issuing a final rule.
• Effective Date:
  • Could take effect as early as the beginning of 2019 if the process proceeds smoothly.
    • Ann Tergeson (06:45): “It isn't likely to happen before the end of the year, but potentially the first part of next year.”

Impact & Conclusion

• Potential Positive Impact:
  • These changes could dramatically increase the number of workers at small firms with access to retirement savings.
    • J.R. Whalen (07:09): “Could be good news for American workers looking to prepare for retirement.”

---

Notable Quotes & Memorable Moments

• Ann Tergeson (03:25): “About half of private sector workers don't have access to a 401(k) plan at work or a retirement savings plan at work. And a large portion of that stems directly from the small company market.”
• Ann Tergeson (04:35): “The advantages of that [multiple employer plans] are twofold: you can negotiate lower fees, and it would take a lot of the administrative burden off of the small employer.”
• Ann Tergeson (05:43): “They're trying to design that flexibility... if one wanted to offer a match and another didn't, they could each do what they wanted to do.”

---

Important Timestamps

• 00:36 – Introduction to main topic: small businesses’ 401(k) challenges
• 02:51 – Ann Tergeson explains why small businesses have trouble with 401(k) plans
• 03:25 – Statistics on workers without retirement plans
• 04:00 – The Trump administration’s executive order and policy background
• 04:27 – Explanation of multiple employer plans (MEPs)
• 05:43 – Flexibility in plan design and administrative changes
• 06:37 – Rulemaking process and estimated timeline
• 07:09 – Implications for American workers

---

Overall Tone & Takeaway

Clear, informative, and pragmatic, the episode provides both background and practical details about a significant change in retirement policy. The conversation is straightforward and solution-focused, showing both the challenges small businesses face and the positive momentum behind these new proposed regulations.

---

Transcript

[Small Business Owner]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Advocate for Durbin Marshall Credit Card Bill]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner]

See banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Advocate for Durbin Marshall Credit Card Bill]

they need while increasing megastore profits. They deserve it, don't they?

[Electronic Payments Coalition Spokesperson]

Tell Congress stop the Durbin Marshall money grab for corporate megastores. Paid for by the Electronic Payments Coalition.

[J.R. Whalen]

With your Money briefing. I'm J.R. whalen at the Wall Street Journal in New York. A large percentage of small businesses have not had the money or the manpower to offer 401k savings programs to their employees. Well, that could change very soon. We'll have details in a moment. First, these money and market stories you should know Wells Fargo has agreed to pay a $65 million fine to settle claims brought by the New York Attorney General' that the bank misled investors about its cross selling tactics where bank employees made as many as 3.5 million potentially unauthorized accounts to try to hit sales goals. The attorney general's office says it is still looking at what it calls Wells Fargo's illegal business practices of opening millions of unauthorized accounts and enrolling consumers in services without their knowledge or consent. The company didn't admit liability and said the settlement costs had been previously accrued. In Wall Street Journal economics reporter Laura Kosisto reports the housing market is stumbling through its longest slump in four years as the divergence between a booming U.S. economy and weakening home sales that many had dismissed as temporary now looks to be in position to continue. It's triggered by a combination of rising mortgage rates and high home prices, a lack of inventory, a new tax law that reduces incentives for homeownership that have weighed on the housing sector this year. And even though September saw rising housing inventory levels, the national association of Realtors says that fewer people attended open houses. That shows demand could be faltering and that some potential buyers might be giving up, at least for now. Economists said that rising home prices, which are up more than 50% nationwide since prices bottomed out in 2012, have been a drag on the housing market. And recently mortgage rates have been shooting higher, up roughly a percentage point this year to nearly 5%. Up to now, it's been a challenge for small businesses to offer 401k plans to employees, but that could change thanks to a new crop of proposed rules. And Wall Street Journal retirement reporter Ann Tergeson is here with details. So, Ann, has it been a matter of expense that has kept small businesses out of the 401k arena.

[Ann Tergeson]

That's a large part of it. I think it's also kind of a hassle for, you know, small business owners who really are often just focused on. They're trying to focus on making their business work. You know, it's just. It's just an extra thing for them to do. But, yes, I mean, costs can make a big difference. Small plans tend to be very expensive compared to the plans that companies like IBM can offer their, you know, thousands

[J.R. Whalen]

of employees and small businesses not being able to offer 401k plans. That's contributed to a substantial number of Americans not having a reliable retirement savings in instrument to prepare for in the years after working.

[Ann Tergeson]

Yeah, about half of private sector workers don't have access to a 401k plan at work or a retirement savings plan at work. So. And a large portion of that stems directly from the small company market. So, you know, this has been something that policymakers have been concerned about for years. There's been a number of efforts to try to solve the problem of small businesses that don't offer plans in the past, and, you know, largely they've been unsuccessful. So this is sort of the latest effort.

[J.R. Whalen]

It caught the attention of the White House. The rules are also the result of involvement by the Trump administration. And they see preparation for retirement as a major issue.

[Ann Tergeson]

Right. So at the end of August, President Trump issued an executive order instructing various departments, including the Labor Department, to see what they could do about some of these issues. I mean, he specifically directed them to look at a specific type of solution to the problem of small companies not offering programs. And so that's been something that's been on the agenda for the White House. And as a result, it's on the agenda for the Labor Department, which issued this regulation today.

[J.R. Whalen]

The new rules would allow companies in assorted business associations to join together and offer 401k plans. Can you explain that?

[Ann Tergeson]

There's something called a multiple employer plan. So the idea then is that rather than each small company offering its own plan, small businesses can join together and offer a plan together. So the advantages of that are twofold. One is that by having more companies in a plan and having more employees in a plan, you can get scale. And when you get scale, well, you can negotiate lower fees. So it's a way for small businesses to get like a plan that's actually got lower fees. But it's also this solution would. It would make an entity, like an association, the responsible entity. In coming up with the plan, in establishing the plan, in filing all the paperwork, in administering the plan. So it would really take a lot of the administrative burden off of the small employer. It would also take what's called the fiduciary responsibility in large part off of that employer as well. So that if something went wrong with the plan, the employer would not be at risk of being sued, which has been another barrier to small companies wanting to do this.

[J.R. Whalen]

Oh, okay. And the companies offering the plans would have some freedom with regard to 401 programs, like whether to offer matching funds.

[Ann Tergeson]

Right. So they're trying to design that flexibility and so that if, you know, a whole bunch of employers joined together to offer a plan and one wanted to offer a match and the other didn't, they could each do what they wanted to do. One would not offer one and one would offer one. And so, you know, there's some degree of customization available. And also these plans would be offered potentially by associations. So associations of businesses, like, for example, a chamber of commerce might decide that it wants to sponsor a plan, and then all the members of that chamber of commerce might be eligible to actually join that plan. So the structure has been in existence for a while, but it's been only allowed for a very narrowly related group of companies to join together. What the Labor Department is trying to do is broaden the group that's allowed to join together so that it's not just, you know, all companies that are owned by the same entity, it can be companies that join the same association.

[J.R. Whalen]

For example, this proposed package of rules was released on October 22, and if it's all approved, it could go into effect in 2019.

[Ann Tergeson]

The regulation is going to have to go through the regular process that regulations go through. It's like a 60 day comment period. And then the Labor Department takes the comments and tries to figure out if it needs to revise the regulation in any way. And it either revises it or it doesn't. But then it. It finally issues the final regulation, which isn't likely to happen before the end of the year, but, you know, potentially the first part of next year.

[J.R. Whalen]

Okay, could be good news for American workers looking to prepare for retirement. That's Wall Street Journal retirement reporter Ann Tergeson in our studio with us. Anne, thanks for being with us.

[Small Business Owner]

You're welcome.

[J.R. Whalen]

And that's your money briefing. I'm J.R. whelan in New York for the Wall Street Journal.

[Small Business Owner]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Advocate for Durbin Marshall Credit Card Bill]

Inflation is killing me. But who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner]

See banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Advocate for Durbin Marshall Credit Card Bill]

they need while increasing megastore profits. They deserve it, don't they?

[Electronic Payments Coalition Spokesperson]

Tell Congress, stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.