A good friend in the industry recently came to me with a question that every professional that deals with ERISA has heard 100 times. Why should a small business owner care about ERISA? The response below can hopefully be used to further the dialog.
#1 – It’s Your Money Too.
Retirement plans can be designed to benefit both the small business owner and the rank and file employees. In fact, it is commonplace for the small business owner that sponsors a retirement plan to accumulate the biggest account balance. Unfortunately, if the plan is paying unreasonable expenses, it is likely that the owner is paying the lion’s share. Questioning whether fees are reasonable, a specific requirement of ERISA, can enhance the small business owner’s accumulation possibilities as well as for the rank and file.
#2- You’re Personally Liable.
One thing is certain regarding any small business owner accused of fiduciary malfeasance: they quickly become familiar with ERISA Section 409. ERISA Section 409 is not the same as Formula 409, which disinfects and cleans. Instead, ERISA Section 409 can wipe out the financial security of a small business owner that fails to conduct themselves in the best interests of the plan participants, because ERISA Section 409 makes the small business owner personally liable to make good on their mistakes. Read: liability is not limited to business assets. This means the house, the car, and in some circumstances, the fiduciary has even had to cash out their own retirement account to make good on the losses they have caused.
#3 – The Department of Labor (DOL) Doesn’t Care if You Have 10 Employees or 10,000.
The DOL is funded with tax dollars and thus can put as much work and effort into helping 10 employees recover losses due to fiduciary breaches as they can helping 10,000 employees. Evidence of the DOL’s activity on plans of all sizes can be found at http://www.dol.gov/ebsa/newsroom/fscpcp.html. Note the descriptions of the employers and the minimal amounts of money involved in these civil and criminal enforcements. Thus, the small business owner should understand that other small business owners just like them have felt the ramifications of violating ERISA. As Alexander Hamilton stated in the Federalist Papers No. 15, “If there be no penalty annexed to disobedience, the resolutions or commands which pretend to be laws will, in fact, amount to nothing more than advice or recommendation.”
#4 – It’s Easy to Comply if You Get the Right Help.
Complying with ERISA, while complicated, is not impossible as long as you have the right help. ERISA requires a plan sponsor to honestly and prudently self-assess their strengths and weaknesses and then hire qualified help where they lack expertise. Following ERISA means seeking qualified advisors by establishing a documented process that includes the right questions and verified evidence of an advisor’s claim of expertise. Securing the right advisor will help steer the average small business owner through the compliance gauntlet and position the small business owner to focus on what they do best…running their business.
#5 – Better Outcomes for You and Your Employees.
Having an ERISA compliant retirement plan should, in most outcomes, provide employees with a larger source of income later in life. Obviously, this is the very reason retirement plans exist. Consequently, if an employee recognizes this, it can increase loyalty and productivity. It can also allow employees to retire at a time when they are being paid the most in their careers and younger employees are looking to further their careers by moving up the food chain. Nothing will cause a younger work force to flee faster than if they think there is no room to grow.