Bills could make small business 401(k)s easier
Small businesses could find it easier to offer 401(k) plans to employees under a pair of bills introduced in both houses of Congress.
The bills, each called the Retirement Enhancement and Savings Act, would change federal laws to allow companies to jointly offer what are called multiple employer retirement plans, or MEPs. The bills, which have bipartisan support in both the House and the Senate, does not specify that it’s aimed at 401(k) plans, but because of their complexity and costs, many small businesses haven’t been able to offer these plans on their own.
While costs vary depending on the number of employees and amount of money invested in each plan, companies can expect to pay thousands of dollars a year on 401(k)s. An MEP allows them to save on administrative costs because there is one set of paperwork covering all of them. Lower costs also can mean a higher return on money invested in a plan.
The bills would also increase the size of tax credits small businesses can get for starting retirement plans.
A survey of employees last year by the Pew Charitable Trusts found that the smaller a company, the less likely workers are to have retirement plans of any kind available to them. At companies with five to 24 employees, 56 percent had no access to a retirement plan. At companies with 25 to 99 workers, nearly a quarter had no access.
A separate Pew employers’ survey found that the costs of starting a plan deterred more than a third of companies that don’t offer retirement benefits, and nearly a quarter said they didn’t have employees who could handle the work of setting up a plan.
Setting up and maintaining a 401(k) can require considerable paperwork, and a company must contract with a plan administrator — often a financial institution — to hold and manage the money that employees invest, and the money that employers contribute to staffers’ accounts.
The Investment Company Institute, the trade group for the mutual fund industry, believes the bills would make it more attractive to small companies to offer retirement benefits, according to spokeswoman Rachel McTague.
The bills also increase to as much as $5,000 the tax credits a company can get to recover its retirement plan startup costs for each of three years after a plan is created. Under current law, the limit is $500. It would also allow companies to automatically enroll employees in retirement accounts, but staffers could choose not to participate.
Many small businesses offer retirement plans designed specifically for companies their size. The least complex is the SEP, or Simplified Employee Pension. These plans require little paperwork. However, unlike a 401(k), employees cannot contribute to their own SEP accounts. Another plan, the SIMPLE, or Savings Incentive Match Plan for Employees, does allow employee contributions.