New research in Bank of America Merrill Lynch's Retirement Benefits Report suggests what we all probably already know - small businesses are challenged by the costs of retirement benefits programs, but would like to have them to help their employees.
But recognizing the problem is the first step toward a solution, and it's also an excellent opportunity for retirement advisors to reach out and grow their own business in 2013.
Rick Irace, head of Institutional Retirement and Benefit Solutions for BofA Merrill Lynch, says the company's most recent study indicates that just 33 percent of small businesses (100 employees or less) are able to offer any kind of DC plan to their workers.
But talk to business owners a little more deeply and you discover they really would like to provide the benefits and do see their advantages in attracting and retaining employees, Irace says.
"It's most interesting when you see a disconnect in the data," Irace notes. "When we asked them, 75 percent of business owners say they feel their employees are like family. At the same time, only 37 percent of companies that do have a retirement plan say they feel responsible for making sure their employees have enough assets to sustain them in retirement."
What's worse, only 18 percent of companies without retirement benefits share that "financial responsibility" attitude, he adds.
What are the major roadblocks to instituting a plan? It mostly comes down to money, Irace says, and with continued economic problems still impacting small business, the costs, complexities and administrative burden of selecting, sponsoring and helping to run a DC plan still seem like too much of a challenge.
It's a Catch-22, Irace notes, as employees who are financial fit and somewhat confident in their retirement security tend to be more focused and productive.
Of the 700 business owners surveyed, more than half also said their employees had simply not asked for a workplace DC plan as a benefit, suggesting some of the impetus for a plan could be generated by employees themselves. For the most part, respondents said they simply had too few employees to justify the cost and also felt that a DC plan would do little to help their company's "personal economy."
"The good news is that 80 percent of the people we talked to would be likely to offer a plan within the next two years, and that's a great opportunity for advisors," Irace said.
In Merrill's case, an easy solution is a low-cost, largely online product like the Merrill Edge Small Business 401(k), a self-serviced and easy-to-administrate 401(k) program designed for companies with less than $250,000 in plan assets. And they're not the only ones trying to reach these smaller employers.
"The industry, overall, is looking for these kinds of solutions, and we've seen others doing more online," said Karen Mara, director of small business retirement product management for the company. "The issue with most business owners is that this is money that's literally coming out of their own pockets."
But the opportunities are definitely out there - supported by other small-business-oriented offerings like SEPs, plus SIMPLE and BASIC plans - and in 2012, more than 4,400 of Merrill Lynch's financial advisors managed to land at least one plan with a small business - and 250 of the Merrill Edge plans were opened, as well.
BofA Merrill Lynch admittedly has a few more touch points with potential customers through the banking channel and a direct mail campaign, but in the end, Irace says selling customers on the notion of becoming a plan sponsor is still largely the duty of a retirement advisor.
"Our talking points are pretty simple," he said. "We can provide affordable solutions to provide big company styled benefits to small companies, plans that offer simplification through a pre-set investment menu, and the online features mean an ease to participation and self-service. Also, there's significant tax benefits, for both the employer and the employees."