Legislation to Boost Retirement Saving Plans Signed into Law

Washington, D.C. – U.S. Senator Susan Collins (R-ME) announced that a version of the SIMPLE Plan Modernization Act that she co-authored with Senator Mark R. Warner (D-VA) was signed into law as part of the government funding package.  The legislation will provide greater flexibility and access to small businesses and their employees seeking to utilize the popular SIMPLE plans as an option for saving for retirement.  

“Increasing access to employer-sponsored retirement plans is one way to improve Americans’ financial security, yet approximately two out of every five Mainers in the private sector lack access to a retirement plan at work,” said Senator Collins.  “The SIMPLE Plan Modernization Act is a win-win proposition that helps small businesses enhance their employee benefits and assists workers with taking steps to save for retirement.”

Congress established SIMPLE (Savings Incentive Match Plan for Employees) retirement plans in the Small Business Job Protection Act of 1996 to encourage small businesses to provide their employees with retirement plans.  Retirement plans among small employers continue to be scarcer than among medium and large employers.  While these smaller businesses have access to tax-favored retirement savings plans (including traditional 401(k)s), those plans are more expensive to administer.

Businesses with 100 or fewer employees may currently create SIMPLE retirement savings accounts for their employees, so long as the employers do not have another employer-sponsored retirement plan.

The SIMPLE Plan Modernization Act increases the contribution limit for SIMPLE plans.  Increasing the limit will achieve two basic goals: 1) Encourage more small business employers to offer a retirement savings benefit to their employees and 2) Allow small business employees to save even more each year on a tax-deferred basis.

The new law will:

• For the smallest businesses (1 to 25 employees), raise the contribution and catch-up limits for SIMPLE plans by 10 percent, as compared to the limits that would otherwise apply when this change goes into effect in 2024.

• Give businesses with 26 to 100 employees the option of the higher contribution limits, and, in order to continue to encourage them to transition to 401(k)s when they can do so, increase their SIMPLE plan mandatory employer contribution requirements by one percentage point if they elect the higher limits. 

• Allow for a reasonable transition period for employers that grow beyond 25 employees.

• Make the limit increases unavailable if the employer has had another plan within the past three years (to encourage businesses that already have qualified plans to retain them).

• Direct Treasury to study the use of SIMPLE plans and report to Congress on such use, along with any recommendations.

###