Helping Employees of Small Businesses Save for Retirement

By Andria Danine Simckes

Creating a systems where small businesses can offer affordable and competitive 401(k) retirement plansHelping Employees of Small Businesses Save for Retirement

Despite the need to save more, many employees do not have access to an employer-sponsored retirement plan. This is particularly true of employees working for small businesses with fewer than 100 employees. In fact, more than half of all employees employed by small businesses nationwide are not offered a retirement plan at work.

There are a number of reasons why this is the case. First, many employers are unaware of what options are available, how they work, and how to promote the benefits to employees. Second, retirement plans like 401(k) plans are commonly associated with high administrative costs that limit the rate of return to employees. Finally, some small employers are not set up for automatic payroll deductions needed to make deposits, therefore offering a retirement plan impacts their bottom-line adding to the cost of doing business.

Unfortunately, recent efforts taken by Congress to promote the benefits of saving for retirement by making it easier for small businesses to offer retirement plans have been met with limited success. As a result, states like Michigan, Washington, and most recently Connecticut have pursued their own plans for helping employees of small businesses save for retirement.

I believe it's time for Missouri to help workers save for retirement by making more options available to them.

As Treasurer, I will begin with educating our small business community about two Individual Retirement Account (IRA) options + SIMPLE and SEP + that they could offer to employees as retirement plans. These IRAs were designed to minimize paperwork and offer more flexible contribution limits to employers, while also allowing employees to save for retirement. Research shows that a payroll deduction is a key factor in the success of employer-sponsored retirement plans. For this reason, I will also promote a third IRA option known simply as a payroll-deduction IRA. This option enables employees to elect to have a portion of their paycheck automatically deposited into their personal retirement account by their employer.

In addition, I will create a small business universal 401(k) plan. Such a plan would provide employees an incentive to save for retirement as well as make it easier for our businesses to compete for workers by giving them the ability to offer more benefits to their employees. Moreover, by creating a universal plan 401(k), it significantly reduces administrative costs to employees allowing workers to keep more of what they save.

ENDNOTES
Government Actions Could Encourage More Employers to Offer IRAs to Employees, GAO-08-590 Report, June 2008, http://www.gao.gov/new.items/d08590.pdf
Ibid.
Michigan is considering allowing employees of small businesses to access a state-administered 401(k) plan at little or no cost to the employee. Washington is studying whether creating a 401(k) plan would benefit employees of small businesses. Last month, legislators in Connecticut voted on a bill to create a universal 401 (k) plan for employees of small businesses that passed the state Senate, but did not come up for vote in the state House of Representatives before the session deadline.
Government Actions Could Encourage More Employers to Offer IRAs to Employees, GAO-08-590 Report, June 2008, http://www.gao.gov/new.items/d08590.pdf