The Small Business Committee, led by Chairman Sam Graves (R-MO), today held a hearing to examine the state of retirement savings for small employers, the barriers they face in offering plans, and how the recent employment trend to more part-time workers affects retirement participation.
“Saving and preparing for retirement has always been a struggle for Americans, and offering retirement plans has likewise been a challenge for small businesses,” said Chairman Graves. “With an aging baby-boomer population, the uncertainty of Social Security, and the recent employment trend to more part-time workers, a focus on small business retirement benefits for employees is extremely important. Today’s hearing provided a valuable dialogue on this topic. Any actions that Washington takes on tax reform, investment-related regulations, and definitions of full-time employment must keep this challenge for small businesses in mind.”
Small business owners cite administrative complexities, cost, and management risk as reasons why it is difficult to offer plans. In 2012, the Government Accountability Office reported that only 14 percent of small employers sponsored a retirement plan for their employees. Those with 1 to 4 workers had the lowest sponsorship rate—5 percent, while those with 26 to 100 workers had a 31 percent sponsorship rate.
Today’s hearing coincided with the release of a new report from the Transamerica Center for Retirement Studies about the state of the retirement benefits offered by small companies and the retirement outlook of their employees. The 14th annual survey found that 88 percent of small company workers value 401(k) as an important benefit, but only 58 percent are offered such a plan by their employers.
The study also suggested that the recent employment trend towards more part-time workers, due in part to the health care law 30-hour definition of full-time employment, could lead to the decline of retirement plan coverage. Part-time work has made up the majority of the job growth so far this year. Despite the high percentage of small businesses that report offering plans, the findings reveal a gap in plan coverage for part-time workers. At small companies, only 36 percent of part-time workers are offered a 401(k) or similar plan, compared to 68 percent of full-time workers.
Materials from the hearing are available on the Committee’s website HERE.
Catherine Collison, President of Transamerica Center for Retirement Studies in Los Angeles, CA said, “The Transamerica Survey found that small companies are less likely than large companies to offer a 401(k) or similar plan. Additionally, small companies that offer plans tend to have fewer plan features.
“The survey findings underscore the importance of workplace retirement benefits in helping small business workers (“workers”) prepare for retirement. The vast majority of workers (88 percent) at small companies value retirement benefits as important. Of the small-company workers surveyed, 36 percent expect 401(k), 403(b) accounts, and/or IRAs to be their primary source of income when they retire.”
C. Roy Messick, III, CPA and QPA of TPP Retirement Plan Specialists, LLC in Overland Park, KS said, “The country needs to encourage more small businesses to offer retirement plans to their work force. It is vastly important for Americans to start saving more of their own compensation for retirement. It is not only important for them individually, but also important for society as we will not be able to “bail out” a significant portion of society if they do not save for themselves.”
Ray Rucksdashel, Chief Financial Officer of Quest-Tec Solutions, Inc. in Houston, TX said, “…in my view, the administrative complexities of 401(k) plan administration are the biggest obstacles to small businesses offering employee retirement benefits. As a CFO, I understand that the deferment of income for tax purposes is the primary reason that 401(k) plans are complex. I understand the need for strong fiduciary standards to protect those who invest their earnings into these plans. And I understand the need for oversight and rules ensuring that participants understand their rights and are fully informed of the risk associated with investing their money in these plans. But these protections and disclosures come at a price, and that price is complexity and a significant administrative burden on plan administrators.”