Hands off the little guys; that’s the message contained in a new report from ERISA attorney Bradford Campbell and the U.S. Chamber of Commerce. The paper, titled “Locked Out of Retirement: The Threat to Small Business Retirement Savings,” argues recent Department of Labor proposals to expand the definition of fiduciary would negatively impact “two of the most popular retirement savings vehicles for small businesses: Simplified Employee Pension IRAs (SEP IRAs) and Savings Incentive Match Plan for Employees IRAs (SIMPLE IRAs).”
“This regulatory expansion would change the rules governing how financial advice is provided to roughly $15 trillion in retirement savings, putting DOL in charge,” writes Campbell, former head of DOL’s Employee Benefits Security Administration and now counsel at Drinker Biddle & Reath, referring to the rule change’s impact to the overall retirement market. “Unsurprisingly, this kind of sweeping change would result in a lot of unintended consequences.”
Small businesses make up 99% of all U.S. employers, he notes, and account for 63% of new private-sector jobs, as well as almost half of all private-sector employment and output.
“Like their large employer counterparts, small business entrepreneurs and the millions of workers they employ need retirement savings opportunities. But unlike large employers, many small businesses may not be able to offer a 401(k) or similar “traditional” retirement plan due to cost, administrative complexity, or eligibility rules. Instead, many of these small businesses rely on simplified retirement plans to cover their owners and employees.”
Two of the most attractive and popular retirement savings solutions used by small businesses are SEP IRAs and SIMPLE IRAs, Campbell adds.
“SEP IRAs and SIMPLE IRAs are easy and inexpensive to set up, and do not impose ongoing administrative or reporting requirements on employers, allowing their focus to remain on growing their businesses. These special IRAs have been very successful in helping small business workers save for retirement—nearly 10% of all current IRAs come from SEP/SIMPLE-type plans. As of the end of 2014, there were approximately $472 billion of retirement savings in these types of IRA plans. Another study of IRA data concluded that more than 9 million U.S. households owned employer-sponsored IRAs like SEP and SIMPLE IRAs.”
More complex regulations mean more hurdles and compliance costs, and a greater likelihood of lawsuits, Campbell concludes.
“Main Street advisors will have to review how they do business, and likely will decrease services, increase costs, or both. Small business SEP IRA and SIMPLE IRA arrangements that currently depend on these advisors for affordable assistance are likely to disproportionately bear the costs of excessive regulation—their small scale means they are more expensive to serve. The U.S. Chamber believes that DOL’s proposed regulations risk hurting the very small businesses and workers they are intended to protect.”