Only 22 percent of workers at small firms currently have access to a workplace savings plan or pension
Washington, D.C. - Bipartisan legislation to reduce duplicative filing costs for small businesses looking to offer retirement plans to their employees was introduced by U.S. Sens. Susan Collins (R-ME), the Chairman of the Senate Aging Committee, and Mark R. Warner (D-VA), a member of the Senate Finance Committee. Their legislation was unanimously approved by the Senate Finance Committee last Congress.
“Americans simply aren’t saving enough to be able to afford a comfortable retirement. In fact, there is an estimated $7.7 trillion gap between what Americans have saved for retirement and what they will actually need,” said Senator Collins. “When employers provide their employees with access to retirement plans, approximately 80 percent of them contribute. Our legislation will help promote retirement security by making it easier and less expensive for small businesses to establish retirement plans, increasing their accessibility to employees and helping to ensure that those who worked hard for decades do not spend their retirement in poverty.”
“As the nature of work continues to change, increasing access to workplace retirement plans is a crucial step in providing a secure retirement to millions of Americans,” Senator Warner said. “For smaller employers, offering a retirement plan can be expensive and complex, so we should make it easier and reduce duplicative filing costs for them to offer retirement plans and promote retirement security for all workers.”
A 2016 report by the Pew Charitable Trusts found that 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. For smaller employers, offering a retirement plan can be expensive and complex.
The bill directs the Department of Labor (DOL) and the Treasury Department to allow employers and sole-proprietors participating in retirement plans administered in the same way to file a single aggregated Form 5500, a required annual return that provides important compliance information to DOL and Treasury.
Under current law, despite sharing a common administrative framework, each individual plan is still required to file a separate Form 5500 to satisfy reporting requirements under the Employee Retirement Income Security Act and the Internal Revenue Code. Today’s proposal will eliminate duplicative reporting by plan administrators, which will reduce costs for small businesses that maintain retirement plans. To file an aggregated Form 5500, the retirement plans would need to have the same trustee, fiduciary, plan administrator, plan year and investment menu.
The self-employed, including sole proprietors and small business owners, are the most likely to establish a retirement savings plan that would benefit from and meet the requirements necessary to file an aggregated Form 5500. According to 2016 survey findings from the Transamerica Center for Retirement Studies, in collaboration with Aegon Center for Longevity and Retirement, only one-third of self-employed respondents indicated that they make sure they are saving for retirement.
To provide DOL and Treasury time to implement this change, the proposal has an effective date of no later than January 1, 2021. A copy of the legislative text is available here.
Congresswoman Linda Sánchez (D-CA) and Congressman Phil Roe (R-TN) introduced companion legislation in the House.