# Challenges of Managing Small Business Retirement Plans April 30, 2024 ## Common challenges of serving new, first-time SMB 401(k) sponsors To reduce the coverage gap and manage small business retirement plans better, it’s crucial for recordkeepers and TPAs to understand what makes some small firms offer a 401(k) plan while others don’t. This involves considering factors like revenue stability, business size, 401(k) plan costs, and how much administrative work it takes to manage the plans. Managing 401(k) plans for new small and medium-sized business (SMB) sponsors poses several challenges for recordkeepers, including: - SMB sponsor’s limited awareness of retirement plans and available incentives - Increased need for ongoing customer support - Cost sensitivity among SMB sponsors - Higher demand for customization - Difficulty accessing data from SMB payroll systems - Increasing operational workload with more SMB clients ### Challenge 1: SMB sponsors lack awareness of retirement plans and available incentives Many small firms aren't familiar with the range of retirement plan options available to ease their cost and administrative burdens. While most know about 401(k)s, few are acquainted with SIMPLE, SEP, and MEP/PEP plans, and [72% reported being unaware of tax credits that could help offset the startup costs of launching a new plan.](https://www.ebri.org/content/small-business-retirement-survey--policy-knowledge-and-reasons-for-offering-or-not-offering-a-retirement-plan) They also tend to [overestimate the financial and time commitments](https://business.bofa.com/content/dam/flagship/workplace-benefits/id20_0905/documents/Small-business-retirement-plans.pdf) needed to offer a plan. ### Challenge 2: SMB sponsors need more ongoing customer support SMB sponsors often lack the know-how and resources needed to effectively support a retirement plan. From selecting the right plan to handling ongoing management, the prospect of starting a plan can overwhelm already busy business owners and small HR teams. In fact, [63% of SMB employers not offering retirement plans cite resource constraints as the reason](https://www.ici.org/print/pdf/node/836811). ### Challenge 3: SMB sponsors are cost-sensitive Small businesses are usually hyper-focused on costs. A lot of owners and HR managers assume that traditional retirement plans are too pricey and involve additional fees and hidden costs. In fact, about [half of small businesses with 99 or fewer employees say they find it hard to afford retirement plans](https://newsroom.fidelity.com/pressreleases/fidelity-study--despite-concerns-about-the-future--two-thirds-of-small-businesses-do-not-currently-o/s/72432825-233e-4a33-a470-3bed305b2f04). ### Challenge 4: SMB sponsors need greater customization Similar to big companies, small and mid-sized businesses (SMBs) have diverse employee demographics with varied financial goals. This leads SMB employers to seek personalized retirement plans akin to larger organizations. However, because of limited resources and budget constraints, achieving enterprise-level customization is often challenging for them. ### Challenge 5: Difficulty accessing data from SMB payroll systems As a whole, the retirement industry is still heavily reliant on outdated data-sharing methods for accessing sponsor payroll data. Currently, the most common method recordkeepers use is [SFTP, which is manual and inflexible](/content/blog/sftp-vs-api/index.html). ### Challenge 6: More SMB sponsors means a greater operational burden With more SMB employers offering retirement benefits, the daily workload for recordkeepers’ Operations, Engineering, and Client Success teams is set to skyrocket. Balancing this surge in workload while maintaining service quality becomes paramount for recordkeepers striving to meet their clients' needs effectively. ## How 401(k) recordkeepers can streamline small business retirement plan management To enhance their service delivery and better meet the needs of SMB sponsors, recordkeepers can take several steps. They can: - Automate processes to improve operational efficiency - Simplify data access to develop smoother and faster workflows - Leverage modern technology to offer best-in-class customer support ### Automate processes to improve operational efficiency First and foremost, to effectively handle the growing workload, recordkeepers should prioritize automating tasks that are currently done manually: automatically enrolling employees based on eligibility, quickly determining what dollar amount to invest, and pushing changes directly back to the payroll system. This allows recordkeepers to reallocate Operations headcount to other teams and invest more resources into strategic initiatives. ### Simplify data access Much of the manual labor involved in managing 401(k) plans revolves around creating and sharing data files with each pay period. To truly automate plan management, it's crucial to leverage innovative solutions that streamline data access. Recordkeepers can greatly benefit from using integration tools like unified APIs, which offer quick and reliable access to multiple payroll systems through a single integration. ### Offer best-in-class customer-support As mentioned earlier, many SMB sponsors don’t offer retirement plans because they aren’t familiar with the available options, incentives, and fiduciary responsibilities. Recordkeepers who can offer a better user experience, simplify plan setup and management, and reduce the administrative burden of already overworked HR teams will emerge as the most employer-friendly solutions.