A bipartisan bill introduced in the House has given proponents hope that retirement reform will be a priority in both chambers of Congress in 2015.
The Small Businesses Add Value for Employees Act of 2014, co-sponsored by Wisconsin Democrat Ron Kind and Washington state Republican Dave Reichert, was introduced just days before the end of the last legislative session.
Among other things, the SAVE Act would increase deferral rates in existing SIMPLE and safe harbor 401(k) plans, extending tax credits on the matches small employers make into plans, and permitting more "open" multiple employer plans, which would allow non-aligned small businesses to pool assets under one plan.
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Several provisions are comparable to those in Sen. Orrin Hatch's SAFE Act, suggesting consensus could be found between chambers in several areas.
Rep. Kind originally introduced the bill in April of 2011, but it stalled in the subcommittee on Health, Employment, Labor and Pensions, according to a government-sponsored website that tracks legislation.
The bill would encourage automatic enrollment of participants enrolled in Simple 401(k) plans and allow for deferral of up to $10,000 annually. That's a more aggressive safe harbor than the Starter 401(k) proposed in Hatch's SAFE Act, which allows for $8,000 in deferrals.
Kind's bill would also increase the automatic deferral rate to 4 percent of salary, up from 3 percent, and permit automatic escalation of deferrals at 1 percent per year, ultimately topping out at 15 percent of pay. As is, automatic increases stop at 10 percent of salary.
A safe harbor for plans that offer an employer match would allow participants to be automatically enrolled at 6 percent of pay, which would be increased at 2 percent per year, and ultimately capped at 10 percent.
Simple IRA plans could more readily be rolled over into other employer-sponsored plans, and contributions in the individual accounts would be increased to be equal to employee contributions allowed in regular 401(k) plans.
For small businesses most reluctant to offer a plan, Kind and Reichert's bill would create an auto IRA enrollment program that would not be subjected to ERISA oversight. Employers would not contribute, but automatic deferrals of 3 percent would increase 1 percent annually, ultimately capped at 15 percent.
Extending "open" multiple employer plans, which allow sponsors to aggregate participant resources under one administrative umbrella while removing most fiduciary liability off the books of individual sponsors, would be made available to businesses with fewer than 500 employees, a far more expansive allowance than what now exists.
As is, ERISA limits participation in MEPs to sponsors with fewer than 100 participants.
The SAVE Act would also loosen sponsors' fiduciary liabilities when selecting an insurance company to provide lifetime income products.
The job of assuring an insurer's future solvency would fall to the state regulators that oversee the insurance industry. Sponsors would be required to obtain written declarations from insurance companies that regulators are monitoring their financial statements and cash reserves.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
