Retirement Saving Plans for Workers at Risk

The Wall Street Journal – February 26, 2009

Small businesses are having a harder time meeting their obligations in offering retirement benefits for their employees, with two stark choices facing them: shut their doors or end their contributions, according to testimony at yesterday’s hearing before the House Committee on Small Business.

“Even before the economic downturn there was concern that small employers could not offer retirement plans at the same level as large corporations,” said Rep. Nydia Velazquez, D-N.Y., chairwoman of the House Small Business Committee, in a statement. “With consumer spending at an all-time low, and credit difficult to access, many small firms find it impossible to make up the difference for retirement plans hit hard by the stock market’s losses.”

Consider the facts: In the past 18 months, more than $2 trillion in retirement savings has been lost because of the stock market’s downturn. 401(k) plans have dropped more than 20% in value in the past year. In addition, 56% of workers are less confident in their ability to achieve a financially secure retirement than 12 months ago, with about a third expecting to work longer and retire at an older age, according to a recent survey by the Transamerica Center for Retirement Studies.

“In the current economic environment, it is more important than ever that Congress focus on encouraging the implementation and maintenance of retirement plans by small business,” says Jason Speer, vice president and general manager of Quality Float Works Inc. of Schaumburg, Ill., and a fourth-generation manufacturer.

Witnesses urged the Committee to look into these solutions:

– Consider measures to cap the amount of losses employers are responsible for covering during market downturns.

– Encourage unlimited pre-funding of defined benefit plans during “good” times so that there is less strain during the “bad” times.

– Make employee IRAs mandatory.

– Raise the age for required minimum distributions from 70.5 to 75, since many people are working longer.

– Create an annual tax credit to reward small employers that continue to maintain retirement plans and contribute to the plans.

Ranking Member Sam Graves, R-Mo., says that only 30% of small firms offer a pension plan, according to a National Federation of Independent Business survey, even though small companies represent 99% of all employers in the U.S. “We must work towards educating American workers on the necessity of retirement saving and helping, not by mandating small businesses to provide employees with retirement benefit plans,” Mr. Graves said in a statement.

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