Small-business owners who want to offer retirement savings plans to employees are hoping Congress takes a serious look at the issue this year.
The House Committee on Small Business in the fall held a hearing on the state of retirement savings for small employers, noting administrative complexity and costs could discourage some businesses from offering the benefit.
The committee cited a 2012 study by the Government Accountability Office that found only 14 percent of businesses employing 100 workers or fewer sponsored some type of savings retirement plan. The GAO study said that of employers with one to four workers, only 5 percent of such businesses offer retirement savings plans.
“Small employers understand the importance of providing good benefits, including retirement savings options, to attract and retain quality employees,” Rep. Sam Graves, R-Mo., said at the Committee on Small Business hearing. “However, in today’s economy that can be very challenging.”
President Obama, in his State of the Union address Tuesday night, announced a measure that could help at least some people – the creation of new government-sponsored savings accounts for workers who don’t have access to a 401(k) plan. But the new accounts aren’t expected to solve the problem entirely.
In an interview with BenefitsPro.com, another Missouri Republican, Rep. Blaine Luetkemeyer, who is vice chair of the committee, said policymakers are worried that the still-recovering economy could continue to create barriers for small employers in offering retirement plans.
“The cost of retirement plans is something that’s very significant to them,” he said. “Their bottom lines are being squeezed, with a weak economy that hasn’t progressed as folks would have hoped. The regulatory burden continues to increase. They’re looking at options; they’re trying to figure out how to afford this.”
Still, small-business owners know that having a retirement plan available makes them more competitive in their pursuit of talent.
A report by the Transamerica Center for Retirement Studies, released in conjunction with the committee hearing, found that 88 percent of employees with small companies say they value retirement benefits. And a study by Sharebuilder 401(k) found that 89 percent of small-business owners that offer 401(k) plans say that the benefit is an important factor for attracting and retaining talent.
Catherine Collinson, president of TCRS, testified at the hearing, offering several suggestions for helping small-businesses provide retirement plans to workers.
These included expanded tax credits to offset the costs borne by small businesses in offering retirement plans, the establishment of multiple-employer plans that allow small-business owners to collaborate in offering plans, and increasing the default contribution rate of savings plans.
“The current 3 percent minimum default contribution rate sends a misleading message to plan participants that savings at these levels is sufficient for a secure retirement,” Collinson said at the hearing. Plan participation would likely increase if tax policy were changed to encourage workers to save at higher rates, she said.