More than just a retirement crisis, the retirement savings crisis is burdening employees and employers alike, but none are more strained than small-business owners looking to provide savings vehicles for their workers.
Today’s system works well for large and medium sized firms, but much less so for small firms, said Bennett Kleinberg, VP of institutional investment solutions for Prudential Financial, during an event in Washington, D.C. on Monday. While large and medium firms’ retirement programs cover roughly 80% of their employees, the Bureau of Labor statistics shows small employers can only cover 50% of their employees.
In an impromptu poll of about 50 small business owners, only two to three said they offered retirement programs, although the majority in attendance said they would if they could.
“There are solutions,” said J. Mark Iwry, senior adviser to the Secretary of the Treasury and deputy assistant secretary (tax policy) for retirement and health policy for the U.S. Treasury Department. “And they’re in the process of being implemented – and in many cases [there are] things you can do right now,” he added.
When one small business owner outlined her challenges in trying to reintroduce an employer match to the company’s 401(k) plan since the economy’s downward spiral, Iwry’s response was “just do it.”
Although expensive, one idea he outlined as an option is to use some of the payroll budget. If a company is in a financial position to give raises, he said, they may want to consider taking a chunk of the raise and putting it toward the employer match. “It may be a way to phase in employer matching without increasing annual compensation costs,” he said.
And if a traditional 401(k) vehicle isn’t an option for employers, Prudential’s Kleinberg discussed opportunities for employers to form open multiple employer plans (MEPs).
In recent years, Prudential has been vocal in pushing Congress, the IRS and DOL to fix and modify several MEP requirements. One such example is the “bad apple” rule. As currently interpreted, some of these requirements, such as nondiscrimination rules, are applied on an employer-by-employer basis rather than a plan basis. This means that just one noncompliant employer can jeopardize the tax status of the entire plan, putting all employers at risk. This barrier is often referred to as the “one bad apple” rule.
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