The Spark Institute unveiled a proposal for the creation of a standardized savings plan for small employers that have been reluctant to adopt current employer-sponsored plans due to concerns about cost and potential fiduciary liabilities. The institute's proposal is meant to provide a simple and cost-effective alternative to employer-sponsored plans already available and to a recently proposed mandatory payroll deduction IRA.
The new "Universal Small Employer Retirement Savings Program" (USERSP) would be offered by employers with 100 employees or less.
Vice President Joe Biden, who heads up the White House's Middle Class Task Force, recently called for the establishment of payroll-deduction individual retirement accounts, in which every employee would be automatically enrolled unless they opt out. These automatic IRAs would be also available for self-employed workers, for independent contractors and for anyone changing jobs.
The Spark Institute's plan would require mandatory enrollment in the USERSP with participant opt-out. Any employer that offers a USERSP would not be required to offer a mandatory payroll deduction IRA to its employees. Contribution limits for a USERP would be lower than limits for 401(k)s, but higher than IRAs. Employers would not be required to make contributions to the plan, but limited voluntary contributions are permitted.
To protect employers and service providers from fiduciary liability, the plan calls for investment options that would have to meet minimum requirements.
USERSPs would also not be subject to existing discrimination testing. The Spark Institute says elimination of discrimination testing would reduce compliance administrative burdens, and that mandatory enrollment in the program would offset the need for such testing by providing access to a plan for all employees and requiring employees to affirmatively opt out if they choose not to save. "Moreover, data shows that significant numbers of employers who are unable to make meaningful contribution to their own plan due to discrimination testing failures terminate such plans," according to a report from the institute.
To ensure maximum savings, there are limited plan features, including no loans and only safe-harbor hardship withdrawals.
All USERSPs would use the same government approved prototype plan document. Spark Institute says the use of a model plan by all service providers and employers would substantially reduce administrative costs and would relieve employers of the enormous and costly burden of ensuring that their plan documents comply with applicable legal requirements.
The SPARK Institute represents the interests of a broad based cross section of retirement plan service providers and investment managers, including banks, mutual fund companies, insurance companies, third party administrators and benefits consultants. Through the combined expertise of its member companies, the Institute provides research, education, testimony and comments on pending legislative and regulatory issues to members of Congress and relevant government agency officials. Collectively, its members serve over 62 million participants in 401(k) and other defined contribution plans.
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