By Cyril Tuohy
A pair of competing bills designed to boost retirement savings for workers at small businesses have been introduced in the Senate as Democrat and Republican lawmakers scramble to show they are doing all they can to help workers plan for the future.
The two bills, introduced by lawmakers from both sides of the political aisle, endorse the employer-based retirement system that many workers say they find convenient and adaptable to their needs — so long as employers offer the benefit.
The Universal, Secure and Adaptable Retirement Funds Act of 2014, sponsored by Sen. Tom Harkin, D-Iowa, chairman of the Senate Health, Education, Labor and Pensions Committee, is “particularly good” for small-business owners, he said.
Calling the bill a “common-sense” approach to retirement, the proposal would allow small-business owners to offer better benefits to employees while relieving owners of the administrative burdens that often come with retirement plans.
“USA Retirement Funds would be 21st century retirement plans, run entirely by the private sector, that drastically reduce costs through professional management and risk sharing,” Harkin said.
One benefit of the Retirement Funds Act is universal coverage. The coverage is designed for the more than 61 million people without access to a workplace retirement plan, and the estimated 14.5 million who are self-employed.
Cosponsored by Sen. Sherrod Brown, D-Ohio, and Sen. Tim Johnson, D-S.D., the USA Retirement Funds Act also calls for automatic enrollment of employees, with contributions of 6 percent of annual salary. Employees have the option of raising or lowering the contribution amount.
Benefits from the retirement accounts would be paid monthly for life, similar to an annuity, and the plans would be portable from one job to another.
For businesses, pooled professional management and fiduciary liability would cut the costs of the plan by as much as 50 percent, Harkin said.
Small businesses are often considered the most important job-creation machine of the economy but business owners often complain that they cannot afford retirement plans for employees because they are too expensive and complicated.
As a result, millions of workers aren’t even offered the chance to put money aside for their futures via the ease and convenience of employer-sponsored plans.
“We think Senator Harkin’s bill will fill a critical need for the half of the working population who have no access to a retirement plan at work," said Mary Kay Henry, president of the Service Employees International Union.
Separate legislation titled the Retirement Security Act of 2014, introduced by Sen. Bill Nelson, R-Fla., and Sen. Susan Collins, R-Maine, also aim to cover employees working for small businesses. The bill aims at achieving similar goals, but by also tweaking existing laws governing retirement plans for small business, the lawmakers said.
With an average benefit of $1,294 per month, or less than $16,000 per year, Social Security isn’t going to go far enough. “It's hard to imagine stretching those dollars far enough to pay the bills and, certainly, a ‘comfortable retirement’ is out of the question,” Collins said.
The bill would make it easier for businesses with fewer than 500 employees to join multiple employer plans (MEPs) as a way to spread the administrative burden.
It would also allow employees working for businesses with fewer than 100 employees to save more by removing the contribution cap on 10 percent of annual pay, which kicks in with automatic enrollment plans, Collins said.
In addition, the bill would make it easier for low and middle-income taxpayers to claim a credit for retirement plan contributions on the 1040 EZ tax return form.
The American Benefits Council said the bill would advance retirement plans for small business on two fronts: covering more small business workers and boosting benefit levels when the time comes for them to withdraw funds.
“We believe the bill’s reforms of the multiple employer plans rules will expand opportunities for small businesses to band together to maintain plans at a lower cost,” the council said in a statement. The bill has also received support from the Maine State Chamber of Commerce.
Employer-sponsored retirement plans are popular with employees. Nearly two-thirds of U.S. households view defined contribution retirement accounts favorably, according to a recent survey conducted by the Investment Company Institute (ICI), a mutual fund trade group.
“American households’ views on this topic clearly reaffirm the importance of our nation’s DC (defined contribution) retirement plan system,” said Sarah Holden, ICI senior director of retirement and investor research.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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