Click HERE to watch Senator Collins’ Q&A on SECURE Act. Click HERE for high-resolution video.
Click HERE to watch Senator Collins’ Q&A on SIMPLE Plan Modernization Act. Click HERE for high-resolution video.
Washington, D.C. – At a Senate Aging Committee hearing focused on building a stronger retirement system for all Americans, U.S. Senator Susan Collins (R-ME), a member of the Committee, questioned financial planning experts about ways to expand access to retirement plans to small business employees.
While the U.S. has seen increases in the average dollar amounts saved in retirement accounts and the number of individuals owning accounts since 2001, there are some concerning trends as well as gaps in access, coverage, and amounts saved among key
groups. Only 61 percent of workers have access to a defined contribution plan through their employers. Coverage is lower among workers in low-wage and part-time jobs, and among those who work for a small-size employer.
At the hearing, Senator Collins spoke with Dr. John Scott, Project Director of Retirement Savings at the Pew Charitable Trusts, about the benefits of “pooled employer plans” for small businesses. She also discussed the need to modernize retirement plans for small businesses with Spencer Williams, President and CEO of Retirement Clearinghouse.
Senator Collins highlighted the SECURE Act, legislation she co-sponsored that was signed into law in 2019 that gives small employers the flexibility to provide retirement benefits to their employees. She authored a provision in the law to allow small businesses to band together in a single retirement plan, referred to as a “pooled employment plan” or “PEP.”
“PEPs allows small employers to share the administrative burden of a retirement plan without requiring a connection—a nexus—among them,” said Senator Collins. “Dr. Scott, could you help us better understand how pooled employer plans and other provisions of the SECURE Act can improve retirement security for the employees of small businesses?”
Dr. Scott said there has been a lot of interest in the financial services industry in offering PEP products to small businesses and other employers.
“I think what is really encouraging about PEPs in particular is that it does reduce the fiduciary liability to a degree for the small business owner. I think a lot of small business owners are not fully aware of these fiduciary responsibilities when they are thinking about adopting a retirement plan. They are typically focused on the costs of starting to plan, and then whether they have the administrative capacity to operate the plan,” said Dr. Scott. “I think we are optimistic, going forward, about how these PEPs might improve coverage in this area.”
Senator Collins emphasized the need to expand access to retirement plans among the employees of smaller businesses who tend to lack access. In April, she introduced the SIMPLE Plan Modernization Act with Senator Mark Warner (D-VA), which would provide greater flexibility and access to small businesses and their employees seeking to use the SIMPLE Plan as a retirement saving option.
“These accounts are available to businesses with 100 or fewer employees. But here is the catch: under the current law, the employees of these small businesses are not allowed to contribute as much to their plans as those who work for larger businesses would with 401(k)s. The SIMPLE Plan Modernization Act would address this inequity by increasing the contribution limit for SIMPLE Plans, allowing small business employees to save more,” said Senator Collins. “While the U.S. has seen increases in the average dollar amounts saved in retirement accounts and the number of individuals owning accounts since 2001, there are some concerning trends as well as gaps in access, coverage, and amounts saved among key groups.”
“Mr. Williams, if small business employees were treated comparably to large business employees, would this help improve the savings for the employees of your clients?” Senator Collins asked.
Mr. Williams agreed with Senator Collins that the industry needs to harmonize the rules and optimize savings for all workers.
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