A new threat to small business retirement plans?

After last week’s U.S. Department of Labor hearings on how retirement-savings advice is accessed and chosen, if only good intentions guaranteed great outcomes. After much study, I am concerned that the agency’s proposed change to who can offer retirement-planning advice, if not significantly adjusted, could inadvertently make it even more complicated for small businesses to sponsor retirement-savings plans.

I commend the Department of Labor for seeking high standards for individuals who provide retirement-planning advice. Those who help small businesses run retirement plans, and then help employees of those small businesses invest within those plans, should work in the best interests of those whom they are helping. There should be no room for questionable counsel for people who are trying to plan for a secure future for their families. But I’m concerned that the regulatory change could lead to some unwanted outcomes. What could happen in the marketplace, according to a number of studies, could be far more problematic than what the Department of Labor is trying to address. Rather than picking winners and losers, the government should allow the free market to run its course.

{mosads}Few small-business owners have the time or expertise to set up and run retirement plans on their own, much less explain to employees the investment options available to them within the plan. For small-business owners to compete, they need help on things that may not be in their core area of expertise, but nonetheless are critical to their ability to attract and maintain great people. A 2015 Oliver Wyman study shows that small businesses that work with a financial adviser are 50 percent more likely to set up a retirement plan. Microbusinesses with fewer than nine employees are almost twice as likely.

So anything that has even an outside risk of reducing the choices that small businesses have available for such help is a real concern. The U.S. Chamber of Commerce says 99 percent of U.S. employers are small businesses, and they produce 63 percent of new private-sector jobs. A Greenwald & Associates survey of small businesses found almost 30 percent of them are at least somewhat likely to eliminate their retirement plans if the Department of Labor rule change happens as expected. Large-scale restricted or lost relationships with the people who help perform this critical function could be a catastrophe for the small-business community. Retirement plans are too important to the community’s ability to be a magnet for great talent.

But that’s not the only aspect of this suggested rule change that worries me. My organization advocates for the sustainable economic empowerment of African-American communities, so I’m also concerned about risk of lost access to retirement planning help for middle- and lower-income families. The Financial Industry Regulatory Authority has predicted the proposed regulatory change could, by reducing choice in financial helpers, affect a whopping 98 percent of Individual Retirement Accounts(IRAs) with account balances of less than $25,000. Because many moderate and lower-income families in this country are African-American, it’s easy to imagine African-American communities feeling that the most. The research group Quantria Strategies has predicted the regulatory change could result in annual lost retirement savings of up to $80 billion. Too many families in communities of color have a hard enough time socking away for the future. I grapple with the idea that this, of all administrations, might pursue something that carries this sort of risk.

I have great confidence that the administration can get this rule change right, but it needs some adjustment. My organization submitted a letter to the Department of Labor yesterday, asking the agency to be flexible and revise its proposed rule so it carries zero risk of reducing choice in securing retirement planning help for small businesses and middle- and lower-income families.

Alford is the president and CEO of the National Black Chamber of Commerce, which is dedicated to economically empowering and sustaining African-American communities through entrepreneurship and capitalistic activity.