This is the second article in a two-part series on small business retirement. Here, we looked at the higher fees business owners and their employees can expect to pay. In this article, we discuss how to mitigate them.
MANY SMALL-BUSINESS owners are making considerable sacrifices to keep their doors open, including working a second job and forgoing their own paychecks. So cutting retirement benefits may seem like a relatively simple and direct way to eke out extra cost savings, but there are palpable consequences to that move, which could be felt long after the downturn.
Losing benefits might cause some employees to jump ship, says David Wray, president of the Profit Sharing/401(k) Council of America, an industry trade association in Chicago that surveys employers about their plans. And although business may be slow enough now to weather the loss, the economy is already showing signs of recovery. Owners who want to retain their staffs and allow their employees to benefit from a continuing upswing should stick to their benefits plan, Wray says.
Still, managing a retirement plan is costly, and because plan assets shrank when the market plunged, it could get costlier. (Click here for our story on rising retirement costs.) Here are six ways to help you mitigate rising retirement costs without bailing on benefits:
Give your plan a check-up
Figure out how much you’re paying now, says Catherine Collinson, the president of Transamerica Center for Retirement Studies, a nonprofit corporation funded by Aegon NV’s Transamerica Life Insurance Co. What are the administrative and management fees? Are they going up? How do they stack up relative to what the competition pays? An outside advisor or benefits consultant can be instrumental during this process, she says.
Then, look at your provider’s recent performance. Few managers have returned stellar results lately. However, “certain management teams have performed better than others,” Collinson says.
Renegotiate with current providers
If you’re paying too much, renegotiate your plan with your current provider. “Everyone has been impacted, a provider isn’t going to want to lose business,” Collinson says. Still, negotiating for better rates is tough for small businesses, which tend to have fewer employees and lower retirement-account balances.
To improve your chances of landing a better deal, present bids from other plan providers, says Brett Goldstein, the president of the Pension Department, a benefits consultancy in Plainview, N.Y. “The threat of moving to another financial advisor or to another financial institution may do the trick,” he says.
Switch to small business-friendly providers
If you can’t wrangle a better deal, consider going elsewhere, Collinson says. “It’s a competitive market; many providers will be interested in offering investment services,” she says.
Of course, as management fees rise at some providers, some plans will get costlier. So make sure you’re not switching into a plan that’s about to charge more.
Paychex (PAYX) and Automatic Data Processing (ADP) base their fees on service offerings and the number of plan participants, regardless of assets in the plan. Such a fee structure can benefit small companies with relatively few plan assets, Goldstein says.