Witnesses brainstormed on Capitol Hill Wednesday about ways to help employees of small businesses save more for retirement.
Jim McCarthy, managing director at retirement plan services at Morgan Stanley, New York, recommended that Congress find ways to improve the SIMPLE IRA program, by increasing contribution limits and making plan assets more portable.
SIMPLE IRA plans “have lower administrative costs than the traditional 401(k) plan, less liability, and permit the owner to reduce the employer contribution in the event of a downturn,” McCarthy said at hearing of the U.S. House Small Business Committee finance subcommittee, according to a written version of his remarks.
Sal Tripodi, president of the American Society of Pension Professionals and Actuaries, Arlington, Va., recommended encouraging the smallest, least stable employers to set up programs to permit employees to contribute to individual retirement accounts through a payroll deduction system.
“Statistics show that where an employee has a mechanism for making retirement contributions at the workplace, the percentage of employees who actually save for retirement dramatically increases,” Tripodi testified.
But Paula Calimafde, chair of the Small Business Council of America, Wilmington, Del., urged Congress to maintain big gaps between SIMPLE IRA plans, payroll deduction IRA programs and other programs that make it relatively easy for workers to tap their nest eggs.
“Over the years, the data has consistently shown two things,” Calimafde said. “Give the money to an employee and they won’t save it. Give the money to an employee with easy access, and they’ll get to it and spend it.”
Because of that tendency, the best thing for Congress to do is to strengthen the 401(k) plan system and help small employers to get into it as quickly as possible, Calimafde said.
Catherine Collinson, a senior vice president of strategic planning at Transamerica Retirement Services, Los Angeles, a unit of AEGON N.V., The Hague, Netherlands, proposed a strategy for helping small employers give employees access to a traditional defined contribution retirement plan.
Congress could do that by creating legal mechanisms and fiduciary liability shields that would permit small employers to join group or multi-employer retirement plan programs that would be managed by an outside financial institution, Collinson said.
“Multiple employer plans would provide very standard plan terms, and therefore, employers that want plan design flexibility, such as by offering a more robust investment menu, would continue to offer their own plans,” Collinson said.
Collinson also recommended that Congress pass a bill that would provide a tax break for retirees who annuitize their retirement savings by buying lifetime income annuities.
Links to the written versions of the witnesses’ testimony are available