Keep it Simple: Innovations in Small Plan Advisement, Management

Art by Miriam Martincic

Dan Basile, head of retirement product for Ascensus LLC, has a saying to guide his team’s work: Focus on the problem you are solving, not the solution you are selling.

The motto works well in the context of getting the more than 33 million small businesses in the U.S. to offer and maintain workplace retirement plans for their employers. The problem, as the retirement industry knows well, is that many small employers do not offer workplace retirement plans due to cost, fiduciary risk and lack of awareness. The solution, according to industry players, may be to keep offerings as simple as possible.

Basile says his product team at Ascensus is focused on innovating to address core problems for small businesses, rather than new product areas that can often be a distraction.

“We want to make it as easy as possible for sponsors to offer and manage retirement plans,” he says. “That is our overall product philosophy and objective. The industry can get very focused on interesting widgets that don’t necessarily solve a specific problem for constituents.”

Basile and his team are not alone in trying to advance retirement options for small businesses in recent years. Digital recordkeepers have been rolling out new payroll integrations and are working with states on government-facilitated plans. Firms are offering pooled-employer plans that aim to provide large plan benefits to small employers. And payroll providers are touting end-to-end retirement plan offerings to their existing small business clients.

In conversations with recordkeepers and retirement plan advisers, recent years’ focus areas have been: seamlessly integrating retirement plans into small business payrolls; offering easy integration into existing PEPs; simplifying communication to amplify the ease of benefits; and reduced cost thanks to retirement reform.

Payroll Play

Ascensus, which PLANSPONSOR ranks fourth among recordkeepers serving plans with fewer than $10 million in assets, is focused on solving the most common problems for small employers: administrative burden, fiduciary oversight and cost, according to product head Basile.

In order to address administrative concerns, Basile says Ascensus has focused closely on payroll integration. The firm can work with plan sponsors ranging from those who fully manage their payroll process and are looking for a simple integration to those without a payroll process who need more capabilities and guidance to offer a retirement plan.

“Our objective is really to provide a best-in-class payroll experience across that full spectrum,” he says. “So we’re going to have a simple and supportive digital experience for the sponsor that wants to enter their information manually. … On the flip side, we are also vastly expanding the number of payroll 360 integrations [that provide all of the services automatically] with payroll providers for those sponsors who want to be completely hands off.”

Ascensus has relationships with many payroll providers, and it will reach out to try and work with new partners, Basile says. The firm has also deployed a “completely new compliance engine” and a redesigned digital experience that he describes as intuitive and engaging for plan sponsors. He says Ascensus will be adjusting the offering depending on results, but the key is to, “I dare say, make compliance engaging.”

Jeff Rosenberger, chief operating officer for Guideline Inc., says the small plan retirement provider had initial success in part due to a 2016 relationship with payroll provider Gusto—then called Zen Payroll—which had about 30,000 small businesses on its platform. He says the integration of Guideline’s custom-built recordkeeping platform into that payroll system is now the standard for many small businesses.

“I’d emphasize the importance of having your own recordkeeping system and the value of integrating that with payroll so you can have updated information in real time when integrating the two systems,” he says. “Then plan sponsors can say, ‘OK, I’ve got my payroll, and I will just add this plan offering to it.’”

With incentives from the SECURE 2.0 Act of 2022 and an increasing number of state mandates, more small businesses may be looking for a plan, so when a provider can easily integrate with existing systems, it provides peace of mind not just for their operations, but for how the plan can flow to employees as well.

“It makes the product experience better for both the business and the plan sponsor, but also the participant,” Rosenberger says.

PEP Talk

In the mid-2010s, Steve Scott of Retirement Solution Group LLC had been an adviser to a small, regional multi-employer plan that ended up being acquired by a national payroll system. Scott had the idea to consolidate the MEP into one, national plan to gain scale and distribution advantages. Alongside that consolidation would be regional advisers to support the sales team and distribution.

In 2021, the Setting Every Community Up for a Secure Retirement Enhancement Act of 2019’s pooled employer plans took effect, and Scott’s MEP became a PEP. At that point, the offering starting to gain traction and is now “growing like gangbusters,” Scott says.

“The PEP really allowed us to remove a few of those final barriers we had [from plan sponsors] worried about the liability and some of those other blocks,” Scott says. “The PEP allowed us to get rid of that, and the pricing got a little better.”

This year, Scott expects to bring on some 500 new plans to the simplified PEP offering. That’s a far cry from years ago, when the adviser used to refer to small businesses as being the consultant for a single employer retirement plan. Now he gets regional referrals and can offer a national PEP that displays as a single line item for payroll integration, a big advantage when compared with a separate plan fee.

When addressing the first of three critical areas, liability, Scott explains that the PEP taking responsibility for the plan’s required IRS Form 5500, where auditors look, is a critical step. “At the end of the day, if you are signing the 5500, you own it, no different than your taxes,” he says.

In terms of cost comparison, Scott’s firm shows potential clients that average startup plan fees will be more than a pooled plan due to the economies of scale.

Finally, on the administration load, Retirement Solutions Group emphasizes that staff will not have to adjust payroll every time a participant makes moves within their retirement plans, such as taking a loan or paying off a loan.

“At a big company, everybody’s got a department, but in a small business, they don’t,” he says. “The line we use all the time is: ‘Do you want to run a plan or do you want to run a business?’ That resonates with a lot of small business owners, and as long as those costs aren’t prohibitive, it’s a compelling argument.”

Straight Talk

For small employers to be interested in startup plans, however, they first have to know they are an option. Many business startups, especially in their early days, are not even aware workplace retirement plans are available to them, says Stuart Robertson, CEO of ShareBuilder 401k. Every year, the firm surveys 500 businesses with fewer than 50 employees and asks why they don’t have a 401(k) plan.

“Year after year, the No. 1 reason is that they didn’t think they could; they’re too small,” Robertson says. “If you don’t even think you can have an offer for a big company benefit, then you are probably not looking for one.”

ShareBuilder 401k started in 2005 as an online provider operating as a 3(38), so the firm was picking funds for plan sponsors. Now, nearly 20 years later, the firm is continuing to market its offering through efforts Robertson says lean on simplicity and lower costs. As an example, the firm put out a press release on July 24 noting to businesses that the federal deadline to start a safe harbor 401(k) plan is October 1. Those kinds of deadlines, he says, are an excuse to reach potential clients through digital channels.

“Between social, and search, and SEO, YouTube—you name it— all of those channels can be affordable,” Robertson says.

In the press release, the firm stressed the strong job market that has continued despite higher interest rates, inflation and market volatility. Robertson says that, just recently, his firm has noticed small businesses are being drawn to providing 401(k) plans to improve talent attraction and retention.

“Unemployment has remained low, and there still remains over 10 million open jobs out there,” he says. “It’s really competitive, and so we definitely see more businesses coming and saying, ‘We need to offer a 401(k).’”

Robertson says awareness is “very low” among small businesses of the tax incentives available for starting a retirement plan and the credits available from offering a company match. That said, he says ShareBuilder’s advisers use it as a talking point that can generate interest.

“A lot of what our team does is educate,” Robertson says. “Safe harbor [with an employer match] is our most popular plan design we sell. … I think it’s because we spend so much time educating on how it works and how you can use the credit and deduction. [SECURE] 2.0 definitely helps that conversation even more.”