As employees contend with persistent cost-of-living pressures and concerns about their long-term financial security, workplace benefits play an increasingly important role in their financial wellness.
Employees increasingly look to their employers for retirement plans, financial education, and other resources that help them prepare for the future. This means, for small and midsize businesses (SMBs), offering more than a paycheck is becoming essential to attracting and retaining talent.
Yet a significant gap in access remains. Only about half of employers with fewer than 100 employees offer a retirement plan, compared with more than 90% of large employers. Given that small businesses employ about one-third of U.S. workers, closing that gap would strengthen retirement security across the country while helping SMBs compete more effectively for talent.
Research also suggests that employers recognize this competitive advantage. The same report found that one of the strongest predictors of whether a small business sponsors a retirement plan is whether the employer views the benefit as a tool to attract and retain employees. For SMBs competing with larger corporations for talent, retirement and financial benefits should be viewed as a core part of their employee offering.
But expanding financial wellness programs carries fiduciary responsibilities that employers might underestimate. Without the right safeguards, these programs can expose employers to legal, compliance, and reputational risks. As SMBs invest in their employees’ financial futures, their governance and risk management practices need to evolve alongside their benefits programs.
Fiduciary Responsibilities Are the Pillar of Retirement Benefits
Under the Employee Retirement Income Security Act of 1974 (ERISA), employers and individuals exercising certain authority or control over a plan can take on fiduciary responsibilities. Plan fiduciaries generally must act in participants’ best interests, make prudent decisions, monitor service providers, evaluate investments and fees, and maintain appropriate governance processes. Employers should also be prepared to demonstrate how important decisions were reached.
For SMBs, this can be particularly challenging. Large corporations often have dedicated benefits, legal, and compliance teams, while at smaller businesses, those responsibilities may fall to the owner. At midsize organizations, it may sit with the owner, CFO or HR team. In either case, resources are often stretched, and those responsible for the plan oversight are likely already wearing several hats.
That said, the perceived burden of administering a retirement plan may be much greater than the reality. In fact, recent research found that most small firms expect administration to take several days to a full week each month, while the actual ongoing commitment after initial setup may amount to only a few hours annually. More than half also believe that offering a plan would cost over $10,000 a year, even though some available options cost significantly less.
Technology and outside providers can make retirement plan administration more manageable. However, it’s important to note that outsourcing plan management doesn’t remove an employer’s fiduciary responsibilities. Selecting and monitoring third-party administrators (TPAs), investment advisers, and other providers carries fiduciary responsibility.
Understanding Fiduciary Risk
As employers take on fiduciary responsibilities, they should understand both the potential financial risks and the tools available to help manage them. Two important forms of protection are ERISA fidelity bonds and fiduciary liability insurance, each serving a distinct purpose in protecting the plan and those responsible for overseeing it.
An ERISA fidelity bond generally protects the retirement plan against losses caused by fraud or dishonesty by individuals handling plan assets. In contrast, fiduciary liability insurance can help protect an organization and its fiduciaries against certain claims alleging breaches of fiduciary duty or errors in administering and overseeing employee benefit plans, subject to the terms and exclusions of the policy.
The distinction matters because fiduciary claims can involve allegations of imprudent investment selection or monitoring, excessive plan fees, administrative errors, and inadequate oversight of service providers.
Even an employer acting in good faith can incur significant legal expenses when its fiduciary decisions are challenged. That risk can be particularly significant for SMBs operating with limited financial flexibility. A recent survey found that almost 80% of small business owners and operators are experiencing higher costs than a year earlier, while more than 70% report that managing month-to-month cash flow has become more difficult.
For SMBs already under financial pressure, fiduciary liability insurance can therefore provide an important layer of protection. Its value is strongest when it sits within a broader risk-management framework supported by strong governance and effective oversight.
Building a Stronger Framework
Effective fiduciary governance does not require a large compliance department. SMBs can focus on establishing clear, repeatable processes that support prudent oversight.
That includes regularly reviewing fiduciary governance policies, conducting due diligence on plan providers, monitoring fees and investments, documenting important decisions, and educating the employees responsible for plan oversight.
Employers should also periodically evaluate their insurance coverage as their organizations and benefits programs evolve. The protection appropriate when a business first establishes a retirement plan may no longer be appropriate as the company adds employees, expands benefits, or assumes additional responsibilities.
The same principle applies when employers participate in arrangements designed to reduce administrative complexity. Pooled Employer Plans, for example, can reduce some administrative and fiduciary burdens, but employers still retain responsibilities such as selecting the provider and monitoring fees and services.
Financial Wellness Is Built on Trust
Financial wellness programs can strengthen recruitment, retention, and employees’ long-term financial security. But their value ultimately depends on employees trusting that their benefits are being managed responsibly.
As financial wellness becomes a greater competitive differentiator, employers should recognize that offering benefits is only part of the equation. Strong fiduciary governance, thoughtful oversight of outside providers, and appropriate risk protection are equally important.
For SMBs, the objective should not be to eliminate every possible risk. It should be to establish a framework that allows the organization to provide meaningful benefits with appropriate oversight, accountability, and protection. By making governance and risk management integral to financial wellness, employers can better protect their organizations, strengthen their competitive position, and give employees greater confidence in the benefits designed to support their financial futures.
Michael Bonfante is a pensions specialist and Business Development Manager at Colonial Surety Company, where he brings expertise in retirement plan governance, fiduciary responsibilities, and risk management. He works closely with SMB plan sponsors and other retirement plan professionals to help them navigate ERISA requirements, understand their fiduciary obligations, and implement safeguards that protect both plan assets and participants.
Photo courtesy Curated Lifestyle for Unsplash+
