Why don’t more Small Businesses have a Group Retirement Plan?
Originally published on Benefits Canada by Scott Anderson | November 17, 2014 benefitscanada.com
Most business owners and HR champions of independent Canadian businesses know the benefits of offering a group retirement plan to their employees. Many studies have shown that employee attraction, retention and engagement are increased when a group retirement plan is in place.
Many small and medium enterprise (SME) owners have also come to the conclusion that they should put a plan in place but never found the time or the appropriate plan for their employees. The following are some common challenges faced by most independent businesses regarding finding and implementing the appropriate group retirement plan.
Time —Most business owners and HR champions of smaller businesses are inundated with fires to put out on a daily basis. Time is scarce in this environment, and although most of these people believe putting a plan in place is the right thing to do for employees, time constraints don’t allow the group retirement item get to the top of the to-do list. If employers can put aside some time, setting up a plan may be easier than they think, especially with valuable information available.
Plan type —Some companies struggle with the type of group plan to implement, including whether a DC plan or a group RRSP is more appropriate; each choice has its benefits and constraints. The choice between flexibility and company control of the plan must be weighed. For smaller employers, the choice is typically a group RRSP because of the ease to set up and administer. A deferred profit sharing plan can be added to increase employee retention and not attract higher payroll remittances.
Cost —If the appropriate group retirement plan is not chosen, it can be too expensive to implement. Many providers offer a plan under the heading of a group plan but the management fees are the same or only moderately less than the employee can get at their own bank. If the right choice is made, a low-cost plan with appropriate investment options can be set up. This will benefit the employee and employer; the employer can tout the advantages of the plan provided at work and the employee will be paying low management fees.
Administration —Business owners and HR champions have little time to administer the group retirement plans. Day-to-day data entry and employee information changes can eat up some of the valuable time for SME employers. Choosing the proper plan provider and plan type can greatly reduce administrative challenges. There are plans available that provide an almost “autopilot” solution for employers. In a recent survey of small business owners, Standard Life found that small business owners want to spend 20 minutes or less in each pay period administering their retirement plans. With a plan set up appropriately and proper online tools available, this can certainly be accomplished. Employee enrollment and education —In most situations. the employer or HR champion is not an investment expert, but employees usually ask for assistance with enrollment in the retirement plan from their HR department. In some instances, HR may feel compelled to help the employee enrol, but the enrollment process and offering of investment advice are two separate matters so the HR champion should never cross the line into investment advice. They are not licensed, and this could cause liability issues in the future. A properly set up plan can autopilot the enrollment process and take this burden off of the HR department.
Although small businesses face challenges when deciding whether or not to have a group retirement plan and then which type of plan to set up, if the plan is carefully selected at the start of the process it can alleviate much of the administrative, regulatory and time challenges faced by independent businesses.
Scott Anderson is the vice-president of retirement at HUB International STRATA Benefits Consulting. The views expressed are those of the author and not necessarily those of Benefits Canada.
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