401k plans are crucial to any employee who wishes to comfortably retire with a decent amount of money. Currently, however, many small businesses are not able provide their employees with these plans, as they are too expensive. Small businesses are currently unable to pool their purchasing power together with other small businesses in order to provide a 401k plan, however, there is legislation in the 113th congress that is considering to allow the businesses to do so. If they pass this law, small businesses will be able to transfer their fiduciary responsibility to an independent fiduciary. This will allow small business owners to offer the same benefits that medium and large companies which contain over 100 employees has to offer.
Why are Multi-Employer 401k Plans Necessary?
If an employee is wishing to save up for a retirement plan, multi-employer 401ks are probably the most efficient way in doing so. There are two main advantages that comes with these types of plans. The first being that all earnings and contributions to the 401k plan are deferred from all taxes until the employee makes a withdrawal at retirement age, which is generally around 60 years old. The second advantage is that many employers provide contributions that match the amount of money deposited in the multi-employer 401k. This is sort of like the added bonus of working for a reputable company. However, it is important to keep in mind that this is not always provided in the 401k plan and is simply an added benefit that some employers might wish to offer.
Can a Multi-Employer 401k Change One’s Retirement Landscape?
Many people wish to retire by the age of 65, but a common reality for most employees is that they may not necessarily be able to afford to retire. However, the retirement of many individuals could be impacted greatly by offering multi-employer 401k plans. For example, an employee that is in their 20’s who invests in a 401k from the moment he/she starts working with the benefits of the contributions on a pre-tax basis, such as elective deferrals, will notice a large amount of returns over the course of his or her employment history. This is very important while planning for one’s retirement, as it will give a certain amount of cushion for their life as a retiree.
Is the Fact that Small Businesses Cannot Offer 401k Plans a Problem?
This could be more of a problem for the employers rather than their employees. This is due to the fact that the thought of a multi-employer 401k plan will usually tend to attract many talented and hardworking employees, rather than those who simply try to work to get by. Additionally, multi-employer 401k plans will often keep these valuable employees interested in working for the company, is it offers a viable means of preparing for their retirement with the least amount of taxes possible. Finally, business owners who offer 401k plans will be able to use it as a tax write off at the end of every tax term. So it is not necessarily a problem, however, there are several benefits that will come along with this form of retirement plan.
Will this Plan for Small Businesses actually be Passed, and if so, When?
You have to take it into consideration that this mandate is left up to the United States Congress, so it is very difficult to say if it will actually be passed and when. Although it is in legislation, there is the possibility that it will be overlooked and will not pass legislation, or, it could take many months to even years for them to do so.
Independent Fiduciary for these Multi-Employer 401k Plans…
The majority of large banks and investment financing firms will be more than happy to help out with the responsibilities that come with being a fiduciary for these multi-employer 401k holders and small business owners. A vital part in their participation will be to offer cost effective services to small businesses in hopes to gain trust. They will have to effectively handle the money within the plans and responsibly invest it back into their savings in order to produce the most effective 401k plan as possible.
Challenges Faced by Independent Fiduciaries.
There are many challenges that will be faced by these “independent fiduciaries” while dealing with a multi-employer 401k plan. They will need to educate the employers, as well as, the employees on the advantages and even the risks that will be faced while entering the market. In 2008, there was a financial meltdown in the market. This left many potential investors nervous to enter to market which is understandable. There are, however, many advantages in preparing and contributing to a multi-employer 401k plans that should not go overlooked. This is only one of the challenges that will be faced by an independent fiduciary.