Senators Collins, Warner Introduce Legislation to Boost Retirement Saving Plans for Small Businesses

Washington, D.C. - U.S. Senators Susan Collins (R-ME) and Mark Warner (D-VA) introduced the SIMPLE Plan Modernization Act to provide greater flexibility and access to small business employees and their employers seeking to utilize the popular SIMPLE plans as an option for saving for retirement.  

“In my home state of Maine, the vast majority of businesses are eligible to sign their employees up for SIMPLE Plans.  Financial advisors from Presque Isle to Portland have shared their concerns that neither employees nor their employers are in a good position to save for retirement,” said Senator Collins.  “We must give small businesses and employees a better opportunity to save for retirement, and this legislation will provide such an opportunity.”

“The changing nature of work has redefined the employee-employer dynamic, making it harder for small businesses to offer traditional safety net protections for workers,” said Senator Warner.  “We should make it easier for small business owners and their employees to begin saving for their retirement. This legislation is one step towards helping the American workforce prepare for the future.”

“I have advised individuals and small businesses on their investments for over 34 years in southern Maine. Based on my experience, I believe that this bill would be a great step forward in enhancing retirement security,” said Michael A. Reed, Partner and Founding Member of TRSS Wealth Management, LLC, in South Portland.

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.  Then, as now, retirement plans among small employers were, and continue to be, scarcer than among medium and large employers.  While these smaller businesses had 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 proposed legislation would increase the contribution limit for SIMPLE plans.  Increasing the limit would 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 SIMPLE Plan Modernization Act would:

  1. Raise the contribution limit for SIMPLE plans from $12,500 to $15,500 (halfway between current SIMPLE plans and traditional 401(k)s) for the smallest businesses (1 to 25 employees), with a corresponding increase in the catch-up limit from $3,000 to $4,500.
  2. 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. 
  3. Allow for a reasonable transition period for employers who hire additional employees above 25.
  4. Make the limit increases unavailable if the employer has had another defined contribution plan within the past three years (to encourage businesses that already have qualified plans to retain them).
  5. Modernize SIMPLE plan form filing requirements and modify the transition rules from SIMPLE plans to traditional plans to facilitate and encourage such transitions.
  6. Direct Treasury to study the use of SIMPLE plans and report to Congress on such use, along with any recommendations.

The SIMPLE Plan Modernization Act is supported by AARP.