EBRI Finds Small Businesses Don’t Know About Start-Up Credits

The research institute also found that some businesses would consider ending their plan and joining a state-run auto-IRA program if available.

A survey published Monday by the Employee Benefit Retirement Institute suggests that most small businesses which do not have a qualified plan do not add one because they believe such plans do not cover the expense of plan creation. The research also shows that small businesses lacking a plan are more likely than not to be unaware of tax credits that would likely cover the cost of plan start-up.

The 2023 Small Business Retirement Survey was published by EBRI, Greenwald Research and the Center for Retirement Research at Boston College. The survey was conducted from February through April 2023 and surveyed 703 small businesses, meaning those with 100 or fewer workers; 323 of those sampled offered a plan, and 380 did not.

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Of the 380 businesses that reported they did not have a plan, 72% responded “No” when asked if they were aware of tax credits for starting a 401(k)-type plan, SEP or SIMPLE IRA, credits that can total up to $5,000 per year for three years.

The question was asked in reference to a provision in the SECURE 2.0 Act of 2022 that provides tax credits for expenses related to plan creation and administration for the first three years of the plan. Since small business plans rarely cost more than $5,000 per year to operate, this would make plan administration effectively free for three years for most small businesses.

The lack of awareness of these tax credits is particularly relevant because EBRI also found that the primary reasons given for not starting a plan among small businesses were related to cost. Of respondents who lacked a plan, 48% said their business being “too new or too small” was a “major reason” for not having a plan; 36% said “revenue is too uncertain to commit to a plan;” and 35% said “it costs too much to set up and administer.”

The smaller the business, the less likely it is to know about available tax credits, according to the findings. For employers with 1 to 4 employees, only 16% answered that they were aware of the start-up tax credit, whereas 24% of employers with 20 to 49 employees and 50% of employers with 50 to 100 employees said the same.

Craig Copeland, the director of wealth benefits research at EBRI, explains that there “still are not a lot of interactions between advisers and small businesses.” Many lack exposure and access to outside expertise from retirement advisers and other services and, as such, remain unaware of the assistance available to them.

Of those offering a plan, nine out of 10 said they do so for the positive effect it has on employee attitudes and performance. Furthermore, 90% of those offering a plan said it was a competitive advantage for their business in employee recruitment and retention.

State Auto-IRA Programs

A second key finding of the survey was that a handful of small businesses (21%) that already offer a plan may scrap it if the state in which they do business offers an automatic individual retirement account program, such as those found in California, Illinois, Maryland, Oregon and other states.

An auto-IRA program is a state-run defined contribution plan that increases plan coverage by mandating or incentivizing (as in Maryland) participation by all businesses not already offering their own plan. Joining is typically easier to set up than a plan from the private market, though often also with fewer options for administration. Businesses may continue to operate their existing plan or elect to make a new plan independent of the program.

The survey found that “only” 21% of sampled small businesses with a plan responded, “Yes, Would Stop Offering Current Plan” when asked “If it was a requirement in your state to require employers who do not offer a retirement plan to automatically enroll their employees in an IRA, would you stop offering your retirement plan and enroll your employees in an IRA?”

Copeland says “21% could be a large amount” but adds EBRI has not “seen that in states where they are in effect.” Though 21% “could be considered a considerable number,” dropping a 401(k) plan in favor of an IRA could upset employees and prove more of an obstacle than the respondents realized.

The majority (68%) responded that they would continue to offer their existing plan, and 11% indicated they did not know their next course of action.

Since auto-IRAs are subject to the same annual limits as any other IRA—$7,000 for 2024, less than the $24,000 limit for DC plans—21% of small businesses scrapping their DC plan to join an auto-IRA program could lead to less savings among affected workers.

Inspira Simplifies Structure, Targets More Holistic Market Approach

Inspira Financial, formerly Millennium Trust, will be doing outreach to plan advisers with a more streamlined structure, executives say.

Inspira Financial, formerly Millennium Trust Co., has a new structure to go with its new name.

Millennium Trust acquired Payflex from CVS in 2022, adding health savings accounts and consumer benefit administration services to its self-directed individual retirement services, including automatic rollovers. This January, it officially took on its new name of Inspira Financial, with streamlined operations in two main business lines: retirement and wealth; and health and benefits, according to Bryan Levy, Inspira’s managing director of consumer-directed benefits.

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“We took the rebranding as a way to reset, internally and externally, how we come to market,” Levy says. “This gives us the foundation that justifies a lot of what we have been doing and shows that we are not just part of a complete breakfast, but can bring the full meal.”

Inspira began in 2000 providing its IRA and automatic rollover services to plan sponsors and recordkeepers, becoming the country’s largest independent provider of auto-rollovers. The new, holistic approach to the market comes in part from Inspira’s other acquisitions in recent years, including Payflex, Benefit Resource Inc., ProFlex and Maestro Health, the consumer directed benefits business from third-party administration technology company Marpai. Collectively, the acquisitions added capabilities such as health savings accounts, flexible spending accounts, emergency savings funds, commuter benefit plans, COBRA administration and other consumer-directed benefits.

Prior to the restructuring, Levy says, the team felt it was going to market with several similar products and features in a way that was “starting to get clunky.” The more streamlined approach, he says, helps show the market how the firm’s various offerings provide a “more holistic retirement and wealthy journey,” both in the workplace and outside of it.

Adviser Connections

Inspira’s new brand and structure are intended to reach more plan advisers and advisory firms with the goal of increasing partnerships, says Peter Welsh, its managing director of retirement and wealth.

“It used to be plan advisers were funds, fees and fiduciaries, but that isn’t the case anymore,” he says. “There has been an evolution in the workplace that is prompting advisers to need more skills in their toolbox. … One of our key initiatives in 2024 and beyond is to engage with advisers.”

That is an add, Welsh says, to the firm traditionally focusing on relationships with recordkeepers, plan sponsors and TPAs. Inspira can play a role both in ongoing and new plans, but also in servicing terminated plans through its rollout solutions—an area many advisers are not inserting themselves into managing, Welsh says.

Levy notes that Inspira is also more frequently being brought in for requests for proposal on the health and benefits side, at which point the firm will often introduce other areas in which a plan sponsor may be interested, such as emergency savings or commuter benefits.

“We’re not just there to displace another vendor, but to open up the aperture for what [a company] may not have historically done,” he says. “We start out involved in their existing services and then bring in new offerings that are emerging when in the market.”

Workplace Focus

Levy says that, about five years ago, different players in the market all started to engage more in workplace solutions, from the big defined contribution recordkeepers to insurers to payroll providers and banks. He says Inspira can now be a single partner connecting employee benefits, wealth and retirement, but in a system that can be customized to the employer.

“You don’t have to choose who you link with when you work with us,” he says. “We are fluid to help whatever … the customer and plan sponsors is looking for.”

When it comes to emergency savings, Levy notes that, for the moment, out-of-plan savings options are more realistic for most employers. In the long term, however, he expects in-plan sidecar savings will take a larger market share because those accounts can provide a cushion that then gives participants security to put other money aside for retirement.

“It’s kind of your permission slip to talk about retirement,” he says. “Once you have emergency savings, then you can have that detailed plan about retirement. “

Levy also weighed in on the IRS and Department of Labor’s recent guidance and calls for comment on auto-portability of a worker’s savings to go from one qualified savings plan to another. He notes that, while Inspira supports the proposal, there is already a system to prevent leakage by automatically porting savings into an IRA.

“Auto-portability is built on the back of auto-rollovers, and our role is foundational here,” he says. “The new proposal doesn’t solve leakage because [the automatic rollovers keep savings] in a qualified vehicle and connect the account balances of the very disengaged, terminated account back to the saver.”

Correction: Story updated to correct that Inspira acquired Maestro Health, a division of Marpai.

 

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