Improvements will make it easier for small businesses to offer retirement plans, help address nation’s $7.7 trillion retirement savings gap
When employees have access to retirement plans, approximately 80 percent contribute
Washington, D.C. — The U.S. Senate Finance Committee passed the Retirement Enhancement and Savings Act today, which includes provisions championed by U.S. Senator Susan Collins (R-ME) that will help more small businesses offer retirement plans to their employees. According to Boston College’s Center for Retirement Research, there is an estimated $7.7 trillion gap between what Americans have saved for retirement and what they will actually need. As the Chairman of the Senate Aging Committee, Senator Collins has made increasing retirement security one of her top priorities.
Improving the accessibility of retirement plans will have a significant effect on boosting retirement savings. Approximately 80 percent of employees contribute to a retirement plan if it is offered through their employer. By contrast, when employees lack access to a workplace plan, fewer than 10 percent contribute.
While many small businesses would like to offer retirement plans to their employees, they are often stymied by the plans’ cost and complexity. As a result, only 22 percent of workers at small firms have access to a workplace savings plan or pension, compared to 74 percent at firms with 500 or more employees. Senator Collins’ provisions that were included by the Senate Finance Committee today will increase the affordability and accessibility of retirement plans by reducing and simplifying several onerous and unnecessary requirements.
“Americans simply aren’t saving enough to be able to afford a comfortable retirement. In fact, the Center for Retirement Research estimates that there is an estimated $7.7 trillion gap between what Americans have saved for retirement and what they will actually need,” said Senator Collins. “We know that when employers provide their employees with access to retirement plans, approximately 80 percent of them contribute. These changes would help promote retirement security by making it easier and less expensive for small businesses to establish retirement plans, increase their accessibility to employees, and help to ensure that those who worked hard for decades do not spend their retirement in poverty.”
The Retirement Enhancement and Savings Act includes language authored by Senator Collins in her Retirement Security Act, which she introduced with Senator Bill Nelson (D-FL) last year. Senator Collins’ provisions would enable more small employers to offer retirement plans by:
- Allowing small businesses to join multiple employer plans (MEPs) to share the administrative burden and costs of a retirement plan;
- Preventing all businesses participating in a MEP from losing their tax-preferred status if one business fails to meet the necessary criteria; and
- Directing the Treasury Department to simplify, clarify, and consolidate notice requirements for retirement plans.
The Retirement Enhancement and Savings Act also includes measures from a bill Senator Collins sponsored with Senator Mark Warner (D-VA), which would direct the Department of Labor and the Treasury Department to allow employers and sole-proprietors participating in retirement plans administered the same way to file a single aggregated Form 5500, a required annual return that provides important compliance information. Currently, despite sharing a common administrative framework, each individual plan is required to file a separate Form 5500. Eliminating duplicative reporting by plan administrators will reduce costs for small businesses that maintain retirement plans.