New Retirement Account: 51% of Workers Could Benefit from It
NEW YORK ( MainStreet) About 51% of today's workers do not have access to a workplace-based retirement plan, according to the Employee Benefit Research Institute. That's 78 million individuals, representing more than 30 million employees of small businesses in the American workforce.
By allowing businesses with less than 100 employees pool their resources under a single plan, Multiple Small Employer Plans (MSEP) would lower the costs of and simplify the administrative burden of retirement plans for small businesses.
"MSEPs would dramatically ease barriers that small business owners have to offering retirement plans," said Jamie Kalamarides, senior vice president of Institutional Investment Solutions at Prudential Retirement. "They'd bring the best practices of larger employers and make them available to small employers."
Individuals employed with small businesses currently have the option of an individual retirement plan but IRAs are limited.
"Workers don't necessarily benefit from payroll deductions in an IRA and they don't get ERISA oversight on their investments," said Kalamarides.
Proposed by Rep. Richard Neal (D-Mass.) and Rep. Keith Ellison (D-Minn), the Automatic IRA Act of 2013 would prescribe administrative guidance for the use of multiple employer plans and amend the Internal Revenue Code to expand personal saving and retirement savings coverage by enabling employees not covered by qualifying retirement plans to save for retirement through automatic IRA arrangements.
"There are several proposed legislative bills that would remove the one bad apple rule that prevents many small businesses from pooling their resources," Kalamarides told MainStreet.
Other bills are the SAFE Retirement Act from Sen. Orrin Hatch (R-Utah) as well as the SAVE Act by Rep. Ron Kind (D-Wis.) and Rep. Dave Reichert (D-Wa.).
"If passed, each employer would be individually liable for their own decisions and the plan would transfer fiduciary responsibility for investment decisions to a professional," Kalamarides said.
Proposed legislation in the House and Senate would change the law that holds all small employers in a multiple employer plan collectively liable when one employer in the bunch does something wrong.
"Most major investment financing firms and large banks would be pleased to act as fiduciaries for these MSEP account holders and businesses, but it's hard to estimate if such a measure would pass and when," said Jordan Niefeld, a CPA in Miami.
Employers might choose to match their employee's contribution under an MSEP but the plan design is not specified in the federal bills and does not require matching contributions.
Aside from a matching contribution, features of 401(k) plans offered by large employers include automatic enrollment and contribution escalation.
"Offering 401(k) plan-like benefits helps attract talented and hardworking employees to small businesses," Niefeld told MainStreet.
Some states are not waiting for a federal solution in the 113th Congress, which continues through November. California has passed a bill requiring small businesses to offer payroll deduction solutions.