Take the family feeling out of family businesses

I’m pretty sure he doesn’t mean this, but President Obama can be remembered as the man who ended paternalism in the small business workplace.

“Paternalism” is an outdated, inappropriate and inaccurate word today when a small business is likely to be run by either a woman or a man. But it still captures the relationship that often exists between the owner-manager of a business and the employees who work there. Even in the complete absence of blood ties, many who work in such companies, owners and non-owners alike, consider themselves family. Of course, money, not love, is at the core of the relationship, but it often contains a degree of mutual commitment that is highly unusual in public companies, where ownership is represented by a part-time board of directors who are not management.

An attorney who spoke at a large estate planning conference earlier this year commented on this. When a public company is sold, you never hear a CEO instruct lawyers to provide a special bonus to Henry, the former accounts receivable clerk who might not otherwise have enough money to retire. But you see this “all the time” when a private firm changes hands, the lawyer said. (Actually, it doesn’t happen all the time, but no one who has ever mentored or run a family business would be surprised to find this kind of generosity. I’ve seen it myself.)

Paternalism also manifests itself in the benefit packages that owners provide their workers. For 15 years, I paid the full cost of health insurance for all my full-time employees. There was never any discussion about what kind of plan he would buy for them; they got the same plan I used for my own family. If it was good enough for them, it was good enough for me.

But then came the Affordable Care Act, requiring most companies to provide health benefits, specifying minimum requirements for those benefits, changing the insurance market in ways that are virtually guaranteed to raise premiums and allowing people who are not covered through their jobs to buy insurance on their own, many with government subsidies, and without taking into account any pre-existing health problems.

The law also increased my personal taxes to help pay insurance subsidies for all those strangers.

Suddenly, it didn’t make sense for me to be in the business of choosing insurance for my workers. They could go out and buy it themselves, guaranteed, in some cases with subsidies that I was helping pay for because of that tax increase. Some might follow the plans of their spouses; some might go to their parents’ house. Even though our business was small enough to avoid the coverage mandate, that could change, and the government could later impose sanctions on businesses like mine that chose to drop increasingly expensive coverage. So at the end of 2010, I stopped paying for my employees’ insurance, gave them a raise, and told them to spend it however they wanted.

For almost two decades, my company has also maintained a profit-sharing plan. Employees don’t contribute because it’s not a salary reduction plan like a 401(k). I bear all costs. Each year, I decide what percentage of an employee’s eligible compensation (in 2013, defined as compensation up to $255,000) will go into the plan. The employee receives the same percentage that applies to me and my wife, who also works in the business. I get an immediate tax deduction; the employee does not pay taxes on this money until it is withdrawn from the plan.

But the president’s budget proposal, released earlier this month, would change the rules of this game in a way that could make me decide not to play anymore.

The President wants to eliminate contributions to retirement plans, including my profit-sharing plan, on behalf of anyone with a current total balance of $3.4 million or more. This is the amount the president estimates would provide an “adequate” retirement income. The amount could fluctuate wildly: As interest rates go up, the “right” amount goes down. (A sensible modification, not reflected in the president’s proposal, would adjust these limits by age, so that younger workers would have lower limits than older workers.) Equally daunting, a revenue-hungry federal government could, in the future, further lower the limits and immediately tax any “excess” amount forcing you out of the plan.

I don’t think the president’s scheme has much of a chance of passing, so I don’t anticipate making any short-term changes to my company’s plan. But if something like this went into effect, I would stop making profit-sharing contributions, give my employees the money each year, let them pay their taxes, and then decide for themselves whether to save for retirement. Right now I have to cover them to be able to cover myself. An employee who wants early access to money can, within certain limits, borrow it from the plan. But when I’m no longer covered, why should I continue to put their money into a vehicle they may or may not want to use?

I care a lot about the well-being of my staff. I want to see them have health insurance. I want to see you accumulate and invest money for your financial security in old age. I value your loyalty to my business and want my business to provide you with the elements of a stable and secure financial life.

However, in the end, the purpose of my business is to do business, not to provide benefits, and the lives of my employees are my own. I do not wish to become involved in your affairs unless there is a compelling reason to do so. One by one, President Obama is eliminating the reasons.

There are some on the political right who see a deeper purpose in Obama’s policies. Making employees less dependent on their workplace can make them more dependent on the government. Obama makes no secret of the fact that he thinks people can, and should, be able to turn to the government for many aspects of their financial lives. For some conservatives, shutting out small businesses like mine is part of the plan.

I doubt there is such a plan, or, for that matter, any plan, other than raising revenue in whatever politically acceptable way Obama thinks he can manage. But all options can have unintended consequences. Presidential elections may have the unintended consequence of making my workplace feel less like a family affair.