Big Things in Small 401k Plans
Much is written about the incredible opportunity in the micro and small plan market. Advisors recognize the possibilities, but few dive in, preferring quality over quantity and the large plan “score.”
John Glomski isn’t one. He’s making this underserved market work.
“Most advisors get paid on a percentage of assets,” Glomski, an IAR with Minnesota-based Midwest Financial Partners (MFP), noted. “It doesn’t matter what you charge; 50 basis points or 1% or 5% of nothing is still nothing, so most advisors don’t spend time starting plans from scratch. However, the majority of our plans started from nothing.”
It’s a volume business, he explains, but must be balanced with a personal touch. MFP has over 70 plans and approximately 2,500 participants. His average plan has 25 or 30 people and $1.5 million in assets. The team meets with every participant annually, a requirement for MFP to act as the fiduciary on the plan.
Glomski recently presented to an engraving company with eight employees, a plan he’s worked with for 10 years with $1.2 million in assets. The average contribution is 12%, plus participants receive a safe harbor match, so the total for those contributing is roughly 16% of their compensation.
“There was one employee at the last meeting that will join in this January,” he recalled. “He sat through the presentation and afterward said he worked for a very large company for 20 years and had never been told about a 15% goal over time and how he should increase just 1% or 2% every year.”
As a result, the employee set a 3% default to get the previous company’s match and never increased. No one took the time to explain the need to increase the deferral, the miracle of compounding interest, or any of the other concepts crucial to successful retirement outcomes.
“Workers like him need people in front of them every year explaining it to them,” Glomski emphasized. “If they do, these participants are much better off in the long run. He was fascinated that everyone at the meeting had been increasing deferrals every year for the past 10 years.”
When asked about other alternatives, business-sponsored IRAs, for example, that might be better suited to an eight-person shop, he noted the sharp reduction in costs over the past decade due to technology, a reason SIMPLEs and SEPs aren’t as popular as they once were.
“Small 401k plan benefits mean you can put more money in, and a company has more options in its design. The benefits far outweigh its costs, which have come down significantly.”
And the paternal and maternal attitudes many small businesses have towards their workers’ financial futures shouldn’t be overlooked.
“In the micro and small market, I get to work with business owners I admire,” Glomski concluded. “They’re out on a limb, they created a business, care for their people, but they’re wearing many hats. They’re the HR, payroll, controller, and CFO. So, they need guidance and help because they want to provide a retirement plan, but it isn’t what they do for a living, which is where we come in.”
John Glomski, AIF, CPFA is and Investment Adviser Representative with MFP in St. Cloud, Minn.