Small biz retirement plan would OK asset pools
Small businesses that find it too expensive and administratively burdensome to offer employees a retirement plan could find…
Small businesses that find it too expensive and administratively burdensome to offer employees a retirement plan could find a solution in a measure that has bipartisan support in the Senate.
Sen. Mike Enzi, R-Wyo., and Sen. Herb Kohl, D-Wis., are drafting a bill that would allow companies with fewer than 100 workers to pool their employees’ re-tirement assets into a combined plan, Mr. Kohl, chairman of the Senate Special Committee on Aging, said at a hearing last week.
The multiple employer plans would allow firms to hire third-party financial experts for the administrative and fiduciary duties that many small business owners say keep them from offering employees a 401(k) plan or other retirement savings vehicle.
The employer still would have some limited fiduciary liability related to plan selection and fees, according to Mr. Kohl, who plans to introduce a bill in the coming months.
“This would lower cost and encourage more companies to offer retirement plans to small businesses,” he said. “Ultimately, this would result in more people saving for their retirement.”
About 29% of firms with fewer than 100 employees offer re-tirement plans, compared with 81% of larger companies, according to Census Bureau estimates.
Small businesses today can pool their resources to create united retirement plans only if they have related businesses and are sponsored by an affinity group or association. The plans are not widely used, because participating employers still have administrative and fiduciary duties.
“While everybody has an individual responsibility to save, it’s also essential that all workers have the opportunity to save for their retirement,” Mr. Kohl said.
Mr. Kohl said his proposed legislation has the support of the U.S. Chamber of Commerce.
Assistant Labor Secretary Phyllis Borzi, who heads the Employee Benefits Security Administration, expressed some reservations about creating a retirement plan for workers, as opposed to encouraging employers to use other vehicles available to them under the law.
THREE TYPES
For instance, employers can offer three different types of plans based on IRAs: a payroll deduction IRA, a Simplified Employee Pension where an employer contributes a certain percentage for each employee, and a Simple IRA plan where employers must match employee contributions up to 3% of the employee’s salary or contribute a fixed 2% of compensation.
The lack of employer involvement in multiple employer plans could open employees up to abuse from others, Mr. Borzi said.
The EBSA has had problems with similar open employee benefit structures in the group health plan area and with multiple-employer welfare arrangements, which have been the subject of civil and criminal enforcement actions, she said.
A common problem has been large, hidden fees.
“Do we need another option that is structured like an approach that, at least in the health care marketplace, has been rife with fraud and abuse?” Ms. Borzi asked.
Bryan Fiene, a financial adviser for Robert W. Baird & Co. Inc., said that he works with small businesses on many issues, and the cost of providing a retirement plan for an employee of a large firm is much less than the cost for a small employer.
Additionally, small businesses may even have trouble finding the help they need to set up a plan, as it takes as much time to set up a small plan as a large one, he said.
“I don’t know any financial adviser or plan provider who would target that group to help them start retirement plans,” Mr. Fiene said.
Charles Jeszeck, a Government Accountability Office director for education, workforce and income security issues, said that a new GAO study found that asset pooling such as Mr. Kohl is proposing allows small businesses to benefit from economies of scale and lowers prices.
Small businesses and other stakeholders contacted by the GAO recommended a variety of solutions, including simplifying retirement plan administration, increasing the tax credit for starting up a plan and helping firms learn more about the available retirement plan options, Mr. Jeszeck said.
Participants in multiple-employer plans also could benefit from cost savings through access to institutionally priced investments, as opposed to retail investment options that are offered in IRAs, said John Kalamarides, Prudential Retirement’s senior vice president for institutional investment solutions
Other lawmakers have offered their own solutions to encourage more small firms to make retirement plans available to workers.
In October, Sen. Jeff Bingaman, a New Mexico Democrat, introduced an automatic IRA bill that would require firms with 10 or more employees to automatically enroll employees in IRAs if they don’t sponsor a retirement plan. Under this proposal, employees could opt out.
Legislation introduced by Reps. Ron Kind, D-Wis., and Dave Reichert, R-Wash., would increase the allowable contributions for Simple IRAs and expand the startup cost credit for small-employer pension plans.
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