Small Companies' Compliance Concerns

Eighty-four percent of professional service firms say compliance with regulations is their top concern when sponsoring retirement plans for their employees.    
Reported by Tara Cantore

According to research from Nationwide Financial Services Inc., 28% of firms with fewer than 50 employees believe their fiduciary requirements are not being met. According to Tiffany Grinstead, associate vice president of Retirement Plans marketing at Nationwide, firms suspect this because the topic of fiduciary requirements can be overwhelming. These companies run many different parts of the business, not just employee retirement plans. “The entire concept of being legally liable makes them very nervous,” she notes.

Additionally, 28% of plan sponsors lacked a clear understanding of the Employee Retirement Income Security Act (ERISA). “ERISA is a fairly complex act,” says Grinstead. “[Plan sponsors] misunderstand what their personal responsibilities are. They tend to not realize that they are liable.”

Based on the research, firms also say they need financial advisers who are experts on regulatory and legislative issues. Grinstead adds that plan sponsors of small firms need advisers to spend a lot of time hand-holding. “This is a great opportunity for advisers to make sure they are strong in the industry,” she says. “Folks who learn for the first time that they have this responsibility will look to their adviser [for guidance].”

While ensuring plans comply with regulations ranked as the most important service advisers can provide all small businesses, other services placed differently, according to a firm’s size and tenure. For example, firms with fewer than 50 employees rated “timely resolution of operational issues” as the second most important service they expect to be provided, while larger firms placed more value on the “selection and monitoring of investment options.”

Firms that have been in business for more than 50 years ranked “investment selection and monitoring” as the second most important service to support their plan, while businesses less than 10 years old cited “providing participant advice” as their second priority, behind keeping the plan in compliance.

Overall, 69% of professional services firms expect an annual or quarterly plan review, and 67% expect educational materials to be available for their participants.