U.S. GOVERNMENT PUBLISHING OFFICE

35–629 WASHINGTON : 2019

UNLOCKING SMALL BUSINESS RETIREMENT 

SECURITY 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED SIXTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

MARCH 27, 2019 

Small Business Committee Document Number 116–013 

Available via the GPO Website: www.govinfo.gov 

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Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA VELA ́ ZQUEZ, New York, Chairwoman 

ABBY FINKENAUER, Iowa 

JARED GOLDEN, Maine 

ANDY KIM, New Jersey 

JASON CROW, Colorado 

SHARICE DAVIDS, Kansas 

JUDY CHU, California 

MARC VEASEY, Texas 

DWIGHT EVANS, Pennsylvania 

BRAD SCHNEIDER, Illinois 

ADRIANO ESPAILLAT, New York 

ANTONIO DELGADO, New York 

CHRISSY HOULAHAN, Pennsylvania 

ANGIE CRAIG, Minnesota 

STEVE CHABOT, Ohio, Ranking Member 

AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member 

TRENT KELLY, Mississippi 

TROY BALDERSON, Ohio 

KEVIN HERN, Oklahoma 

JIM HAGEDORN, Minnesota 

PETE STAUBER, Minnesota 

TIM BURCHETT, Tennessee 

ROSS SPANO, Florida 

JOHN JOYCE, Pennsylvania 

ADAM MINEHARDT, Majority Staff Director 

MELISSA JUNG, Majority Deputy Staff Director and Chief Counsel 

KEVIN FITZPATRICK, Staff Director 

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C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Dwight Evans ................................................................................................. 1 

Hon. Steve Chabot ................................................................................................... 2 

WITNESSES 

Ms. Martella A. Turner-Joseph, Founding Partner, Joseph & Turner Consulting Actuaries, LLC, New York, NY, testifying on behalf of the American 

Retirement Association ........................................................................................ 4 

Mr. Paul F. Davidson, Director, Product Management, Paychex, Inc., Rochester, NY ............................................................................................................... 6 

Mr. Greg Gorgone, CFO, Citizant, Inc., Chantilly, Virginia, testifying on 

behalf of the U.S. Women’s Chamber of Commerce .......................................... 7 

Mr. Keith Hall, President and Chief Executive Officer, National Association 

for the Self-Employed, Washington, DC ............................................................. 9 

APPENDIX 

Prepared Statements: 

Ms. Martella A. Turner-Joseph, Founding Partner, Joseph & Turner Consulting Actuaries, LLC, New York, NY, testifying on behalf of the 

American Retirement Association ............................................................... 24 

Mr. Paul F. Davidson, Director, Product Management, Paychex, Inc., 

Rochester, NY ................................................................................................ 31 

Mr. Greg Gorgone, CFO, Citizant, Inc., Chantilly, Virginia, testifying 

on behalf of the U.S. Women’s Chamber of Commerce ............................. 41 

Mr. Keith Hall, President and Chief Executive Officer, National Association for the Self-Employed, Washington, DC .............................................. 47 

Questions and Answers for the Record: 

Questions from Hon. Troy Balderson to Ms. Martella A. Turner-Joseph 

and Answers from Ms. Martella A. Turner-Joseph .................................... 52 

Questions from Hon. Troy Balderson to Mr. Greg Gorgone and Answers 

from Mr. Greg Gorgone ................................................................................ 54 

Questions from Hon. Troy Balderson to Mr. Keith Hall and Answers 

from Mr. Keith Hall ...................................................................................... 56 

Additional Material for the Record: 

ACLI - The American Council of Life Insurers .............................................. 58 

IRI - Insured Retirement Institute ................................................................. 65 

Small Business Council of America ................................................................ 75 

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UNLOCKING SMALL BUSINESS RETIREMENT 

SECURITY 

WEDNESDAY, MARCH 27, 2019 

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS. Washington, DC. 

The committee met, pursuant to call, at 11:31 a.m., in Room 

2360, Rayburn House Office Building. Hon. Dwight Evans [vice 

chairman of the committee] presiding. 

Present: Representatives Finkenauer, Kim, Golden, Davids, 

Evans, Schneider, Espaillat, Delgado, Houlahan, Craig, Chabot, 

Kelly, Balderson, Hern, Hagedorn, Stauber, Spano and Joyce. 

Mr. EVANS. [Presiding] The Committee will come to order. 

I want to thank everyone for joining us this morning, and I want 

to especially thank the witnesses for being here today. 

Whether we are working for small or large businesses, a not-forprofit, or a sole proprietor, every American deserves to retire with 

security and peace of mind. Unfortunately, far too many Americans 

are facing a crisis: the inability to fully retire with dignity in a life 

after hard work. 

Many of today’s workers are nowhere close to having enough 

saved away to ensure a quality secure retirement. In fact, half of 

all American families near retirement have $12,000 or less in retirement savings, and one-third have less than $5,000 savings for 

retirement. 

What is more, among non-retirees in their 50s and 60s, 1 in 8 

lack any retirement savings and less than half of them think their 

retirement savings are on track, according to the latest Report on 

Economic Well-Being of U.S. Households. Even among young workers, saving for retirement remains a struggle or even an afterthought. The high cost of an education has made retirement readiness more difficult and for some, impossible. 

Given that there are nearly 30 million small businesses supporting 56 million jobs, it is imperative that small firms have the 

tools and the resources to set up retirement plans so business owners and their workers have financial security. However, when over 

half of all small businesses do not have a retirement plan set up, 

we know that more work needs to be done. 

In addition to serving as the Vice Chair of the Committee—and 

I just said to the Ranking Member, no, I am not Chairwoman 

Vela ́zquez, but she is the Chair—I serve on the Ways and Means 

Committee. Last month, we had a hearing on improving retirement 

security where I had the opportunity to talk about the vitality of 

this issue with small businesses being able to provide retirement 

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benefits to their employees, and also explore some of the obstacles 

facing small businesses and providing this benefit. 

In my home state of Pennsylvania, we have nearly 1 million 

small businesses employing 2.5 million workers, accounting for 46.7 

percent of the workforce for the entire state. Small firms account 

for 99.6 percent of my state employers. Needless to say, small businesses are the drivers in our community. 

In order for these small businesses to remain competitive and to 

continue to be the economic innovative drivers they are, they must 

be able to offer substantial benefits to their employees. One of the 

barriers for the small firms is the cost of setting up a plan along 

with the cost of administering and maintaining the plan. 

Small firms face the ongoing fiduciary duties, such as reviewing 

investment, running discrimination tests, all while trying to run a 

business. Needless to say, the process can become burdensome and 

costly rather quickly. And if the small employer faces too many 

challenges, they may ultimately feel the burden of providing a retirement plan unfortunately outweighs the benefits. Understanding 

these challenges can help us better address the solutions to low 

participation rates among small entities. One approach may be to 

offer tax incentives to small business owners who choose to sponsor 

a plan. 

Another way is to increase plan participation to allow small 

firms to band together to offer retirement plans, which could lead 

to administration savings and reduce the fiduciary responsibility. 

And making it easier for employees to automatically enroll in retirement plans could encourage small businesses to save for their 

retirement. 

These and other issues merit further discussion. But what is absolutely clear is we must act soon to help small businesses, their 

employees and entrepreneurs plan for their future. For this reason, 

we need to make sure that retirement plans are attractive for 

small businesses as their retirement saving is an integral part of 

our Nation’s future. 

And that is why we are here today. The hearing will examine the 

options for small employers, the benefits and barriers they face in 

offering plans and options for expanding coverage. It will allow the 

opportunity to discuss the current vehicles that many small businesses use to provide retirement benefits in ways which they can 

improve upon. 

With the proper tools, America’s small firms can help to create 

financial security for themselves and their workers. 

With that, I thank each of the witnesses for joining us today, and 

I look forward to their testimony. 

I would like to yield to the Ranking Member, Mr. Chabot, for his 

opening statement. 

Mr. CHABOT. Thank you very much, Mr. Chairman. And I know 

you will do everything in your power to live up to the high standards set by Chairwoman Vela ́zquez. And I am sure you are up to 

the task. 

Planning for the future, preparing for what is ahead, and creating a roadmap for success are cornerstones for virtually every 

small business in America. These phrases guide day-to-day decision 

making and help determine long-term strategy. They also mark the 

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fundamental basics of retirement security for both small business 

owners and small business employees across the nation. Unfortunately, saving for retirement is not only a challenge for most individual Americans, it has also proven to be problematic for many 

small businesses. As a result, some of the Nation’s smallest firms 

and their employees are sitting on the sidelines when it comes to 

saving for the future. 

According to the U.S. Department of Labor, 66 percent of all 

businesses provide retirement benefit options to their employees. 

Unfortunately, that means that nearly one-third of all private sector workers are not given an opportunity to participate. Acknowledging the challenges that many Americans have in saving for the 

future, President Trump signed an Executive Order last August to 

help small businesses reduce costs and burdens associated with retirement benefits. A key part of that Executive Order was the expansion of multiple employer plans that provide individual employers the opportunity to band together to offer options to their employees. As we await final guidance on the expansion of this program, I look forward to today’s hearing exploring some of the challenges facing small businesses as they navigate the retirement 

landscape. 

Additionally, I am looking forward to hearing from our witnesses 

about what Congress can and should do in order to jumpstart savings. As a larger and larger segment of our population grows into 

retirement age and we are living longer, we must make it a priority to provide small businesses with a menu of retirement options 

for their employees. 

And again, I want to thank you, Mr. Chair, and I yield back. 

Mr. EVANS. I would like to thank the Ranking Member. 

I would like to explain to you the rules. I would like to take a 

minute to explain. Each witness gets 5 minutes to testify and members get 5 minutes for questioning. There is a lighting system to 

assist you. The green light comes on when you begin, and the yellow light means there is 1 minute remaining. The red light comes 

on when you are out of time, and we ask that you stay within the 

timeframe to the best of your ability. 

To a very good friend of mine, I would like to yield to Mr. 

Espaillat from New York to introduce our first witness. 

Mr. ESPAILLAT. Thank you, Mr. Chairman. And I want to take 

this great opportunity to introduce our first witness, Ms. Martella 

A. Joseph. Ms. Joseph is a distinguished and successful small business owner from my congressional district in Harlem. Ms. Joseph 

is a co-founder and partner of Joseph and Turner Consulting Actuaries, LLC. She is an enrolled actuary certified by the Joint Board 

of the Enrollment of Actuaries. Ms. Joseph has over 25 years of experience in the field of retirement planning consulting. She specializes in defined benefit plans and defined contribution plans and she 

provides consulting services in the area of planned assigned funding and administration for a variety of businesses, as well as selfemployed individuals. In fact, Ms. Joseph, your office is just six 

blocks away from my Harlem office, and I wanted to take this opportunity to welcome you to the panel. 

Mr. EVANS. Thank you. I am going to introduce the rest of the 

panel. 

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Our second witness is Mr. Paul Davidson. Mr. Davidson is the 

director of project management at Paychex, Inc., where he started 

the retirement service division with nothing more than the belief, 

that savings for retirement should an employee benefit access to 

all. Thank you, Mr. Davidson, for overseeing the retirement plan 

service division at Paychex, administrating more than 77,401 plans 

with a concentration on small plan market, Paychex simplifies and 

minimizes the administrative burden for the employer, allowing 

businesses to offer employees state of the art retirement. Welcome, 

Mr. Davidson. 

Our next witness is Mr. Greg Gorgone. Right? Did I get that correct? Gorgone. I apologize. Mr. Gorgone oversees all accounting, finance, HR, recruiting, contracting functions, and support of 

Citizant’s growth and strategic plans. In his role, he provides strategic counseling, integrated planning, due diligent leadership in 

support of business acquisition. During his tenure, Mr. Gorgone 

has overseen major recapitalization, refinancing efforts, and was 

instrumental in developing the company’s financial management. I 

would like to welcome you, Mr. Gorgone. 

I would like to yield to our Ranking Member, Mr. Chabot, to introduce our final witness. 

Mr. CHABOT. Thank you, Mr. Chairman. 

I would like to introduce Keith Hall. Mr. Hall is the President 

and Chief Executive Officer of NASE, the National Association for 

the Self-Employed. With 50,000 members, NASE is one of the nation’s leading authorities and resources for the country’s self-employed and microbusinesses. With a membership consisting of both 

service-oriented and information-oriented businesses, NASE offers 

resources to help the nation’s smallest firms navigate the legal, tax, 

health, and retirement challenges that they face. Prior to serving 

as NASE’s top executive, Mr. Hall was the organization’s Chief Operating Officer, Chief Financial Officer, and its National Tax Advisor. And we welcome you here this morning, Mr. Hall. Thank you. 

Mr. EVANS. Thank you. 

Ms. Turner-Joseph, we would like to recognize you for 5 minutes. 

STATEMENTS OF MARTELLA A. TURNER-JOSEPH, FOUNDING 

PARTNER, JOSEPH & TURNER CONSULTING ACTUARIES, 

LLC; PAUL F. DAVIDSON, DIRECTOR, PRODUCT MANAGEMENT PAYCHEX, INC.; GREG GORGONE, CFO, CITIZANT, INC; 

KEITH HALL, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 

NATIONAL ASSOCIATION FOR THE SELF-EMPLOYED 

STATEMENT OF MARTELLA A. TURNER-JOSEPH 

Ms. TURNER-JOSEPH. Good morning. I would like to thank 

Chairwoman Vela ́zquez, and Ranking Member Chabot, for the opportunity to speak with you about how to achieve a secure retirement for small business owners and their employees. 

My name is Martella Joseph, and I am an enrolled actuary. My 

husband, Eugene Joseph and I are co-founders of Joseph and Turner Consulting Actuaries, LLC, located in Central Harlem, New 

York City. Joseph and Turner Consulting Actuaries, LLC, provides 

actuarial, consulting, and plan administrative services for retirement plans covering thousands of participants, and we specialize in 

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small business plans. The average size of our plans is roughly anywhere between 10 to 20 plan participants. 

I am a member of the American Retirement Association and 

served on the Board of Directors for 12 years. The American Retirement Association represents more than 25,000 retirement plan professionals nationwide from actuaries like myself to consultants, administrators, financial advisors, attorneys, and accountants. Our 

members provide consulting and administrative services to millions 

of American, savers and retirement plan sponsors. Our mission is 

to help American workers strengthen their retirement security 

through workplace retirement plans, particularly for small businesses. 

For most Americans, particularly those with moderate income, 

the key to a successful retirement is having access to a workplace 

retirement plan. These plans particularly benefit the middle class. 

Studies have shown that 66 percent of active participants in 401(k) 

and other profit sharing plans have an adjusted gross income of 

less than $100,000. And of these, more than half have income of 

$50,000 or less. Most importantly, workers earning between 

$30,000 and $50,000 are 12 times more likely to save for retirement through payroll deduction in a workplace retirement plan 

than on their own in an IRA. 

Despite the success of the private retirement system, the American Retirement Association recognizes that far too many American 

workers still lack access to a workplace retirement plan, particularly those working for small businesses. Fortunately, there are 

easy and impactful ways that Congress can take action to increase 

the availability of workplace retirement plans. We strongly urge 

Congress to enact the Retirement Enhancement and Savings Act 

(RESA) as quickly as possible, along with additional legislation to 

drive greater access to workplace retirement plans, as well as enhance the overall experience for those currently participating in the 

system. RESA includes several provisions that when taken together 

will make a considerable, easier for small businesses to adopt and 

maintain a workplace retirement plan. 

It has been far too long since comprehensive retirement legislation has been enacted. Since the last such legislation, the Pension 

Protection Act of 2006, the retirement marketplace has continued 

to innovate by offering new and lower cost retirement-related products, financial wellness tools, and improved decumulation strategies. However, public policies that could promote more innovation 

in the retirement arena have not kept pace. The passage of RESA 

would certainly be a step in the right direction. 

In addition to RESA, we also support Chairman Richard Neal’s 

legislation to further encourage businesses to offer their employees 

access to a payroll deduction savings program. 

And I see that my time is running out so I will cut this short 

by saying that Chairman Neal’s Automatic Retirement Plan program and his Auto IRA program are two pieces of legislation that 

will be very, very helpful for small businesses to start retirement 

plans that act kind of like training wheels on a bike where employers can get used to implementing a workplace retirement saving 

program with no required contributions. 

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I will finish by saying, again, thank you for having me here to 

discuss this topic, and I will be happy to answer any questions. 

Mr. EVANS. When I go back to the meeting I will make sure I 

mention that to Mr. Neal. 

Mr. Davidson? 

STATEMENT OF PAUL F. DAVIDSON 

Mr. DAVIDSON. Congressman Evans, Ranking Member Chabot, 

and members of our Committee, good morning, and thank you for 

the opportunity to testify today. 

My name is Paul Davidson. I am the direct of product management at Paychex. I have worked in the small business retirement 

space for over 30 years and believe retirement security is a critical 

issue facing our country. I applaud the work that Congress and 

this Committee are doing to try to address the challenges many 

small business owners and employees face when it comes to saving 

for retirement. 

Paychex is a leading provider of payroll, benefits, human resources, and insurance services. Paychex serves over 650,000 small 

business payroll clients and pays one out of every 12 American private sector employees. With an average client size below 20, most 

of our customers are true ‘‘mom and pop’’ businesses. 

Paychex now administers more than 80,000 401(k) plans for 

small businesses. Last year alone we worked with over 14,000 

small businesses to start new retirement plans. 

While we are very proud of that accomplishment, to this day, 

over 70 percent of Paychex’s small business payroll clients do not 

offer a retirement plan benefit. As the Committee well, knows, 

while the retirement crisis impacts all types of American employers 

and employees, it has a disproportionate impact among small businesses. According to a Paychex small business survey, more than 

half of small business owners do not have a formal retirement savings program at their business. At the same time, 69 percent of 

small business owners in our research declared zero to little financial preparedness for their retirement. 

Our current policies put heavy responsibility on the small employer if they offer a qualified plan. They can either pay an extra 

3 percent of payroll into the plan to get assurance of a safe harbor, 

or they can leave themselves vulnerable to compliance testing. If 

they become out of compliance, which is easy to do with a small 

number of employees, they often face large, unexpected and 

unbudgeted costs. 

We believe there are a variety of policy changes that could be 

made that would significantly increase the number of small businesses able to offer retirement plans to their employees. Congress 

has begun taking action, and I believe many of the proposals are 

steps in the right direction. For example, the Retirement Enhancement and Savings Act (RESA) makes a variety of changes that 

would be helpful to small businesses, such as an increased tax 

credit. Senators Portman and Cardin also have been working on bipartisan legislation, and the Ways and Means Chairman, Richard 

Neal, has been a leader in this space. And, of course, we commend 

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versation and the solution. In addition, much of the good work that 

is going on in Congress in the space, we believe there are additional steps that could have an even more dramatic impact. 

When we discuss retirement plans with our small business customers, the obstacles to our plans really come down to three 

areas—complacency, complexity, and cost. It is important that we 

do not segregate American workers by the size of the company they 

work for. Our existing policies have achieved maximum penetration 

in the large and midsize market. Now, we need to focus on lowering the burden to the employer so all workers, even those at 

small companies, can save for dignified retirement. 

I believe you could dramatically increase the number of small 

businesses offering retirement plans if you address each of these 

head on. Here are a few things I would recommend: 

Provide a safe harbor that does not require a match. Why do we 

make the employer pay to have his employees safe? 

Allow small businesses to outsource some of the fiduciary responsibility to professionals. Do not make the small business owners become legal experts. 

Make all employees immediately eligible for the plans. Require 

automatic enrollment in the plan. This would ensure wide participation and alleviate the need for our complex compliance testing 

today. 

These changes would eliminate the need for top-heavy compliance and coverage testing when the business would know the cost 

at each payroll and would not be surprised by cost driven from a 

compliance failure. As a result of these changes, small businesses 

would be able to offer a plan that was simpler, less expensive, and 

more accessible to employees. 

In closing, most small businesses that we meet with want to offer 

an employee benefit retirement plan. However, once they consider 

the cost and the regulatory burdens, many choose not to move forward. Making it simpler, easier, and less expensive for small businesses to offer retirement savings programs for employees is sound 

public policy and the right thing to do for American small businesses and workers, allowing all Americans to save for a dignified 

retirement. 

I thank the Committee for their leadership on small business retirement issues and for the opportunity to participate in the discussion today. 

Mr. EVANS. Thank you, Mr. Davidson. 

Mr. Gorgone, you have 5 minutes. 

STATEMENT OF GREG GORGONE 

Mr. GORGONE. Vice Chairman Evans, Ranking Member 

Chabot, and members of the House Small Business Committee, 

thank you for the opportunity to speak today. 

Small businesses employ approximately 47.5 percent of all private sector employees and face a myriad of challenges when it 

comes to offering retirement plans. In a study published by the 

PEW Charitable Trust in January 2017, they found that 71 percent 

of small business owners surveyed stated that it was too expensive 

to set up a retirement plan, 63 percent stated they did not have 

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the resources to administer a plan, and 50 percent stated their employees did not want a retirement plan. 

While it is certainly true that employees of small businesses that 

do not offer retirement plans have retirement options available in 

the form of IRAs, the incentives to IRAs pale in comparison to a 

401(k). The current maximum deferral for an IRA is $6,000 a year, 

compared to $19,000 a year for a 401(k). Furthermore, employees 

working for small businesses not offering a 401(k) are missing out 

on employer contributions, which could be as much as 50 percent 

of the funds set aside for retirement. 

Additionally, participation in an IRA requires a level of self-discipline requiring employees to manually put funds into an IRA 

versus automatic payroll deductions. 

Small businesses not offering retirement plans are at a distinct 

disadvantage competing for talent. Prospective employees are more 

likely to take jobs with firms that offer retirement plans. The inability to attract a top-notch workforce stunts growth for small 

business. 

In an August 2017 article published by People Keep, the author 

noted that the number of workers for whom retirement programs 

is an important benefit is near 70 percent. 

My employer, Citizant, was unable to offer any form of retirement plan to its employees for the first 4 years of operation. Only 

when it was generating roughly $4 million of revenue and had 50 

employees could it afford a retirement plan. 

Small businesses that offer retirement plans face the challenge 

of increasing employee participation. The most often cited reason 

for nonparticipation in retirement plan is financial. Employees cannot absorb the reduced household cash flow. Many are forced to 

prioritize the need for health care over retirement savings. This is 

especially true with lower income levels, and due to the complex 

rules of 401(k)s the nonparticipation of lower income employees 

negatively impacts the ability for higher income employees to defer 

the maximum amounts. 

Recently, we have noticed a trend amongst the more highly compensated employees in their 20s and 30s. Faced with a large student debt payment, this latter group struggles to make ends meet 

and cannot service their debt and save for retirement at the same 

time. They, too, are missing out on employer contributions that 

might be available. 

The IRS, in a 2018 private letter ruling, granted a taxpayer permission to modify its 401(k) to allow it to make contributions on 

behalf of an employee provided the employee was making student 

loan payments. Under this ruling, employees can receive retirement contributions just as if they are participating in the 401(k). 

This benefit should be provided to all employees of all companies, 

small and large. 

Other recommendations mentioned by members of the U.S. Women’s Chamber of Commerce in a recent survey to incentivize and 

assist small businesses to offer retirement benefits include allow 

multiple small businesses to pool their resources to form and administer shared multi-employer 401(k) plans managed by experienced 401(k) plan providers; create greater tax incentives for small 

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tirement plans; simplify the requirements and administration and 

legal reporting requirements for plans offered by small businesses; 

reduce the need for third-party administrators all together; allow 

self-directed investment management through vehicles like exchange-traded funds and promote investment vehicles that do not 

contain additional layers of fees which reduce the retirement savings benefits; incentivize employee savings and use of retirement 

plans by providing an easy, flexible, low-cost, low-fee small business sponsored investment plan. 

Thank you for your support of American small businesses. I encourage you to help incentivize small business owners to provide 

strong, affordable retirement benefits for small business owners 

and their employees. 

Mr. EVANS. Thank you, Mr. Gorgone. 

Mr. Hall, you have 5 minutes. 

STATEMENT OF KEITH HALL 

Mr. HALL. Thank you, Vice Chair Evans, Ranking Member 

Chabot, members of the Committee. I also say thank you for holding this hearing. You can tell by just looking at me already that 

this is a topic that I am extremely interested in because I am getting ready for that as well. 

I wish this Committee has pushed this subject when I was 25, 

rather than I am at the age that I am now. So thank you so much 

for doing this. I think this is very important. 

We represent the 30 million self-employed business owners in 

this country. We estimate that number to be about 50 million by 

2025. To put that in perspective, and I know I am kind of speaking 

to the choir here but to put that number in perspective, the IRS 

process is about $150 million tax returns a year. So by 2025, one 

out of every three of those tax returns will have a small business 

attached to it. So helping those small businesses manage their own 

businesses help grow the economy is very important. And I think 

the retirement issue is becoming more critical to them. 

Now, I hate going last because I end up just saying I agree with 

everyone else, so I have a bunch of the same statistics that other 

people have talked about so I do not want to bore you with all 

those numbers again. But one additional statistic that I would add 

is that the AARP—I do not even want to tell you why I know about 

the AARP—but the AARP, they say that in the next 15 years that 

about 18 percent, one in five retirees will retire with more debt 

than savings. And that hurts my heart. I wish there had been 

someone like us, you know, grabbing the back of my neck when I 

was 25, telling me to start saving. And I think that is what we are 

here to do. To be honest, I struggle a little bit with what we can 

do because I do believe in my heart at some point people just have 

to do it. You have got to start putting money away for savings. I 

hate showing a problem without offering some solutions, so I do 

have three things that I know I want to concentrate on, and I 

would ask you to concentrate on them as well. 

Number one is just awareness. This hearing is a great first step. 

Getting people to be aware that you are not always going to have 

the job you have. You need to put some money aside. If you believe 

the Social Security System is going to be available for you when 

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it is your time, some of the younger people in the room, I worry 

about that as well. So providing these surveys, the AARP survey, 

the Pugh Charitable Trust Survey, lots of people are doing surveys. 

The more information we can put out there I think the better. I 

think that is a critical first step. So thank you for this part. 

The second thing is education. And I think this is where this 

Committee, where you guys, where people like me who work with 

associations of small business people can come in to play and that 

is education. Teaching people what they need to put away. How 

they need to put it away. I think we can bring some pressure or 

encouragement, whichever word we want to use, on the Small 

Business Administration, Small Business Development Centers, 

local universities to do seminars, webinars, encourage them to add 

this topic to their important list of things that people need to know 

about. Now, awareness and education, those kind of all fee good 

but, you know, what does that mean I do on Thursday morning? 

That is a little more difficult. 

The third thing is kind of what you have heard from some other 

members here, and that is concentrate on simplifying the options 

for small business. I think everyone agrees that one of the big hurdles that small businesses face are the cost of implementing a plan. 

If we can help them with multiple employer plans, reduce the cost, 

you can imagine a nationwide or a statewide plan that small businesses could join that have joint investment options, joint choices, 

the fees could be lower. If they could then add their five employees 

to someone else’s five employees, I think there are lots of creative 

people out there that can put together that concept to make a difference for retirement plan options. I think adding some of the 

things that Paul had talked about, reducing some of the Safe Harbor requirements, reducing some of those matching requirements 

so that that small business owner who just has five employees, that 

they want to help save for retirement but really cannot afford a 

profit sharing match or a 3 percent match, give them an opportunity to put the plan in place without some of those extra mandates. I think there are lots of options. 

So I think awareness, education, and then making it simple always, I think that is where we really need to put all of our efforts. 

And thanks again for allowing me to be here. Thanks for raising 

this issue to the top, and I appreciate what you guys do. So thank 

you. 

Mr. EVANS. Thank you, Mr. Hall. 

I know that the Chairwoman, if she was here, she would definitely tell you that she gives you kudos and all of you for what you 

have said. So I know that she felt very strongly about this hearing 

and the importance of this hearing. 

Mr. Gorgone, last month I met with members of the Pennsylvania Small Business Center. One of the concerns they brought to 

my attention was that young entrepreneurs are facing great difficulties starting businesses due to student loan debt. As a small 

business owner, I know you care deeply about your employees and 

want to make sure they take every step to ensure a quality retirement for them. However, many young workers are faced with the 

choice of saving for retirement or paying off student debt. Can you, 

and I heard in your testimony, highlight some of the steps ConSBR002 with DISTILLER

11 

gress can take? And can you expand on these that will address the 

challenges of young workers? Mr. Gorgone? 

Mr. GORGONE. Thank you, Vice Chairman. 

I think the number one thing that I would like to see Congress 

do to help the person paying off student debts is just to give them 

the opportunity to participate in a 401(k) without them personally 

having to put money into it. Allow an employer to match the 

amount that they pay for their student loan as if it was a 401(k) 

contribution. Allow the employer to match that amount up to their 

internal 401(k) plan into a 401(k) for that employee. It gives them 

something which is better than nothing. Beyond that I think there 

are other areas that we can research and get back to you on 

through the Women’s Chamber of Commerce. I do not have any 

other fresh ideas right now. 

Mr. EVANS. Well, I want you to hold your thought because I am 

going to go to you and to Ms. Turner-Joseph. I feel that it is our 

job to do what we can do to help small businesses be competitive. 

A large part of remaining competitive is being able to attract talent 

and the ability to offer substantial benefits is critical. To both of 

you, in terms of recruiting and retaining employees, do you find 

that having a retirement plan is something that employees consider when choosing where to work? I will start with you. 

Mr. GORGONE. I think the question to that is an absolute yes. 

We have seen it in the studies where 70 percent of the workforce 

believe retirement is an important benefit. Fortunately, my company does offer a retirement plan, but we see people making 

choices between how good is your retirement plan versus how good 

is somebody else I may be talking to. You offer a 3 percent match. 

They might offer a 5 percent match. So retirement benefits are a 

crucial part of the equation when prospective employees are making decisions of where to work. 

Mr. EVANS. Ms. Turner-Joseph? 

Ms. TURNER-JOSEPH. Thank you, Mr. Chairman. 

If I may, I would like to go back to the question that you asked 

about student loans and those who are having problems paying off 

student loans as well as saving under the retirement program. I 

think one thing that could be added, I know there is legislation out 

there pertaining to having plan participants get a matching contribution on their student loan and I think that is a wonderful 

move. But what you can do also to motivate employers to want to 

participate in this program is allow the student loans that are 

being matched to be considered in the testing for the nondiscrimination rules for the elective deferrals. And also have the 

matching contributions being tested in the test for matched contributions. That will be a big incentive for employers to want to 

participate in this program because they are providing benefits for 

their plan participants and also it is helping the plan, and I think 

that is a good exchange. 

Do I have time to answer? Okay. 

As far as whether or not employees look at retirement benefits 

when they are making decisions about employment, yes, the retirement program is one of the things that employers use to attract the 

best out there as far as available employees and the employees do 

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look at pension benefits when they are comparing employers as to 

where to work. 

Mr. EVANS. Thank you. My time has expired. I am going to 

yield to the Ranking Member, Mr. Chabot, who is recognized for 5 

minutes. 

Mr. CHABOT. Thank you very much, Mr. Chairman. 

Mr. Hall, I will begin with you if I can. I briefly mentioned early 

on President Trump signed an executive order last August that 

aims to expand retirement benefit options to small businesses, and 

in your written testimony you mentioned it several times. And 

since you gave your written testimony I do not think you went into 

it here. But if you could share with us why you believe that that 

expansion, the multiple employer plans could actually make a difference if it were implemented. 

Mr. HALL. Thank you for the question. 

The main reason I believe that it could certainly make a difference is because of the cost of entering into the field of play. I 

think many small businesses, and I think T. Rowe Price actually 

in their survey mentioned that less than half of self-employed people currently are saving for retirement. And if a self-employed person has four employees, they are not saving for employment. They 

are probably not offering a plan for their employees either. And 

mostly the reason they are not is because it is expensive to have 

a plan. It is complicated to have a plan. They have to worry about 

testing. They have to worry about compensation limits, safe harbors, and it just gets expensive. And I think the multiple employer 

plan has an opportunity to reduce that cost. I am certainly not creative enough to figure out the plan but the thing I believe I would 

love to see is a plan sponsored by a state, by T. Rowe Price, maybe 

joint partnerships, some plan. And there is a nice model out there 

with association group health plans from the past that a small employer who has got five employees can just say I want to be part 

of this 401(k) plan and sign up. Costs are reduced. They have got 

lawyers in place. They have got testers in place. They have got actuaries. They have got CPAs. Their employees can just sign a piece 

of paper and say start withholding 4 percent of my pay, send it to 

Paychex. They get reduced tax for it and they are starting saving 

for their retirement. And now the small business owner has adopted a plan, they are saving for themselves, they are helping their 

employees save, which I think is what we are trying to get accomplished here. And if the MEPs can reduce that cost, then by definition it has already made a tremendous difference. 

Mr. CHABOT. Okay. Thank you very much. 

Ms. Turner-Joseph, if I could go to you next. What would you say 

is the number one retirement issue that small businesses come to 

you with, and what do you tell them when they come to you with 

that problem? 

Ms. TURNER-JOSEPH. The number one issue that employers 

present to me is the fear of sponsoring a plan and the responsibility that comes with sponsoring a plan. Because of the job that 

I do, I am able to alleviate that fear for them most of our clients 

are small and we do a lot of handholding. So, we walk them 

through what they have to do, what responsibility we are able to 

take off their shoulders and do it for them. And once we have comSBR002 with DISTILLER

13 

pleted the job, we sit them down and explain to them what is being 

done. So, education and understanding the process is half the problem. And having someone with them, which I consider myself with 

them, to walk them through the process and let them realize that 

I have got their back, so to speak, it makes it a lot easier. 

Mr. CHABOT. Thank you very much. 

Mr. Gorgone, let me go to you next, if I can. 

As was mentioned here by somebody before, Americans tend to 

oftentimes now—in the past maybe they graduated or whatever, 

worked for this company and worked with them or maybe two companies their entire life. Nowadays, people tend to move around and 

work for various companies and entities, and oftentimes, they have 

got a retirement plan there or they have set up an IRA and then 

their spouse has an IRA and then maybe when ROTH IRAs came 

they are thinking about the tax consequences. They have got all 

these different things. And what would you recommend or what are 

people doing nowadays when they have all these different things 

to figure out, you know, well, I am 65 or I am going to be 70, and 

if I do not start taking certain stuff by then there are penalties. 

You know, what do you recommend people do, and is there anything we can do to simplify this whole process for them? 

Mr. GORGONE. I think one of the things I would recommend 

that people do is as they change jobs throughout their careers they 

continue to move their retirement with them. When you have 8, 9, 

10 different retirement plans, tough to keep track of what you have 

got and where it is and how much it is. 

Mr. CHABOT. Can they combine them into one entity at this 

point? 

Mr. GORGONE. You can roll them over from one employer to another. 

Mr. CHABOT. Even the IRAs and things which they have set up 

individually or not? 

Mr. GORGONE. I would have to defer to a tax expert to answer 

that question, but I believe an IRA can be rolled over. 

Mr. CHABOT. I see some nodding of heads, both in the audience 

and here. So I am going to—— 

Mr. GORGONE. So the key to the second part of your question 

is knowing how much they have available to them and then planning the rest of their lifetime, how much money, how long is that 

going to last them to start taking out the withdrawals at the appropriate times in their retirement age, but the key is knowing how 

much you have got and having it in one place goes a long way to 

getting there. 

Mr. CHABOT. As Mr. Hall mentioned before, as I get older these 

issues I am raising are becoming less theoretical and more personal. 

So anyway, I yield back, Mr. Chairman. Thank you. 

Mr. EVANS. Thank you, Mr. Chabot. 

The next person is the Chairwoman of the Subcommittee on 

Rural Development, Agriculture, and Trade and Entrepreneurship, 

Ms. Finkenauer. 

Mr. FINKENAUER. Thank you very much, Mr. Chair. And 

thank you to our Ranking Member and our great guests here 

today. 

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This is an incredibly important topic, and I know Mr. Chabot 

talked about how this is personal for him, and I have got to tell 

you, as a young woman who got elected to Congress at 29 and now 

I am 30, I have a lot of friends that I grew up with in Iowa where 

this is very personal to them as well. 

The idea and the discussion around retirement right now, especially when talking about young folks and student loan debt is one 

of, I believe, one of the biggest challenges we are going to have 

here in the next 20 years. And I am somebody, again, who is sitting 

there with, you know, about $20,000 of student loans left. I am not 

alone. In Iowa, a lot of us were first generation college graduates 

so our parents worked really hard, helped get us to college but 

could not pay for it all so, again, sitting there with the debt on top 

of it and I have got friends that, you know, graduated from college 

and then took a job possibly at a nonprofit where they are making 

about $35,000 a year. Incredible, amazing, fulfilling work, but 

again, the wages in my state in particular, are some of the lowest 

in the country. Our minimum wage is still $7.25. So you look at 

Iowa in particular and the young folks that I have been talking to, 

friends, family, and the idea of, okay, well, now we need you to put 

more into retirement when they are just trying to figure out how 

they are going to pay their rent, it is a huge issue. And so thank 

you for the work that you have done on this. 

And one of the things that I keep trying to talk to, you know, 

again, folks in Iowa, but also here about how we deal with some 

of the challenges that young folks are facing and also in states like 

Iowa where we are trying to keep folks in my state and also bring 

them back home is creating opportunities for young people to then 

start businesses and create jobs in some of our smaller communities. But, again, one of the biggest hurdles is always going to be 

how are you going to save for retirement on top of it if you do not 

have an employer match? 

So do you have any ideas? I know Ms. Turner and Mr. Gorgone, 

I know obviously student loan debt, this is something you guys 

have looked into a great deal, and Mr. Hall and Mr. Davidson as 

well, but what can we be doing to better help our small businesses 

and our entrepreneurs make sure that they can start their businesses and then at the same time not have to worry about their 

future right away? I know one of the things that has been talked 

about before, possibly a safe harbor for very small businesses to 

have 401(k)s, to have lower startup costs, or what are your 

thoughts on that? Ms. Turner? Oh, it is Ms. Turner-Joseph, I apologize. I just saw the top part of your name. 

Ms. TURNER-JOSEPH. One of the things that can be done, and 

I am happy that you brought up not-for-profit because that is a 

group of employers that do not have a lot of money. They want to 

set up something for the employees to be able to save for retirement and the way the rules are set right now, it is not an easy 

task. Chairman Neal’s bills create the Auto IRA and the Auto 

401(k) plan. Those plans are plans that are structured such that 

a not-for-profit or other lean employer can sponsor a 401(k) plan. 

No employer contributions will be needed, and some of the rules 

will be relaxed so that employees can make elected deferrals under 

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the plan without the employer having to go through all of the testing that other employers have to go through. 

I think something like that is excellent, especially for not-forprofits who will not be able to make employer contributions. It 

gives the employees a chance to save. And it is also excellent for 

businesses who are a little timid about getting into the retirement 

plan market. This is something like training wheels for bicycles. 

We can go slowly and allow the employees to make elected deferrals. And as time passes and the business grows, then the business 

can make employer contributions. 

Mr. FINKENAUER. Mr. Gorgone or Mr. Hall or Mr. Davidson? 

Mr. GORGONE. I would just like to add to what Ms. Turner-Joseph said about the auto enroll. There is a little bit of Big Brother 

connotation with those words. But at Citizant, we were at about 56 

percent participation across our workforce last year. We implemented a new 401(k) plan at the beginning of this year. We implemented an auto enroll giving people the opportunity to opt out if 

they wanted to, and our participation went from 56 to 90 percent. 

And about 60 percent of our workforce, okay, maybe 40 percent of 

our workforce makes less than $35,000. So, and those folk were not 

participating in the plan. So us taking the action to enroll them in 

the plan and giving them—we have a 3 percent match—giving 

them the free money that is found with employer match, those people stayed in the plan and have not opted out. 

Mr. FINKENAUER. Thank you. And I believe I ran out of time, 

so I yield back and I am very grateful. 

Mr. EVANS. Mr. Hall? 

Mr. HALL. I was just going to add—— 

Mr. FINKENAUER. Thank you. 

Mr. HALL.—it still comes back to cost. I think the thing we can 

help most with the smaller businesses, if any of these ideas we 

come up with, whether it is reducing safe harbors, what the multiple employer plans would look like from a cost standpoint, that 

is where we can make a difference for them. Because I think the 

right advice that someone at my age would give to someone at your 

age is do not concentrate so much on how much you have to do this 

year or doing the max this year. Do not worry so much about how 

much. Just do something. Get this started. Let it be part of your 

habit for you as the business owner and for your employees. Just 

get started. Lowest cost level, get started, then grow with it. 

Mr. DAVIDSON. If we are going over then I do have a couple 

points. 

Mr. EVANS. I have to thank the lady. Thank you. 

Mr. DAVIDSON. Thank you. So I think there are three points. 

Two around the individual participants, and that is, as was discussed earlier, to help them, to allow the student loan payments to 

be matched in the 401(k). That helps everybody. But there is another set of the population. As we know, I think the statistic is 40 

percent of Americans do not have $400 in savings. So since the 

401(k) has been our most successful saving scheme ever in our history, why do we not allow employees to have more access to that? 

So why do we not have a rule that they can take out 10 percent 

or 25 percent for immediate needs? 

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And then the third part of the question is to the employers, how 

to make it easier for them. I second what Mr. Hall said. It is about 

relieving them from the responsibility and offering a plan, just 

make it easier for them to open it up so all the employees can save. 

And I think those three things could make a dramatic difference. 

Mr. FINKENAUER. Thank you all. I really appreciate it. Thank 

you. 

Mr. EVANS. The gentleman from the great state of Minnesota, 

Mr. Hagedorn. 

Mr. HAGEDORN. The great state of Minnesota. You are correct. 

Thank you, sir. I appreciate the Chairman’s indulgence. Ranking 

Member, staff, everyone. Thanks to the witnesses. 

I think our ranking republican member is on to something, and 

the concept of portable benefits. Why are we always putting the 

onus on small business and others to create some corporate-type 

structure or benefits when we have a lot of people mobile in the 

workforce moving from job to job, not always staying with one company at a time? Obviously, corporations that have a lot of money 

to put things together, big businesses can offer incentives that 

sometimes smaller businesses cannot. Hard to compete with that. 

But perhaps if we had more, the concept of portable benefits where 

you take your retirement program with you, into your job easily invested by the small business wherever they land, health benefits, 

everything. I think that is what we need to move to or look to, especially for folks in the small business community. Does anyone 

have any thoughts to that? Are there regulatory impediments to 

that? Tax changes that need to be made? I will open it up to Mr. 

Hall and then we will go down this way. 

Mr. HALL. Well, I think it is a unique time for employment. The 

thing that I get worried about when I think about changing generations, as people have moved around more, the people that we are 

struggling with now, those that say 18 percent of the retirees in 

the next 15 years are going to have more income than debt, a lot 

of those people were the ones that had a job for 30 years or 40 

years. If those people did not meet the need then, we need to make 

sure we are encouraging young people now, even if they are moving 

from job to job. And the ability to maintain a ROTH IRA, a traditional IRA, roll those into another plan, all those things are available today. So I do not see the impediment to those. What I still 

want the conversation to be about is getting more people aware of 

their future and recognizing that they need to start doing something now. And then the support for small business is giving some 

of them the options without burdening all the cost, as your point 

is, to not burden small business with the cost for everyone else, but 

allow them to put a plan in place with minimal cost. 

Mr. HAGEDORN. Anyone else? 

Mr. GORGONE. I think one of the challenges that we would face 

is employees moving from a large organization that has really great 

benefits to a smaller organization that helps start up a small business. The idea of those benefits being portable would create some 

sort of challenge for the small business to continue to honor a commitment from a benefit that the individual had, unless I am misunderstanding you. 

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Mr. HAGEDORN. Yeah. I am talking about people having more 

individual benefits. It could be a company or some sort of plan put 

together for individuals to basically latch on to and then they take 

that from job to job. I am not talking about taking benefits from 

some company and moving them over to another. 

Mr. GORGONE. The one thing I would do there is significantly 

increase the income deferrals of IRAs. 

Mr. EVANS. I agree with that. 

Mr. GORGONE. Make an IRA equivalent to a 401(k). The employee can do it on their own. There is no employer match, but that 

is okay if you are going to do a 401(k) with a safe harbor of no 

match. There is no harm or foul. It is the same plan. But it at least 

gives the individual the opportunity to save at the same levels of 

a 401(k). 

Mr. DAVIDSON. I agree with your point. I think there is one 

clarification I make. What we see is people with large balances, 

they make sure it gets rolled over. They do not forget their 

$100,000. The ones that have a smaller balance, those are the ones 

that need help, and unfortunately, our financial system today, 

there is not a lot of people chasing around to try to get a $10,000 

or $15,000 contribution. And that is right when the balance is beginning to grow and it can begin compounding. So I think the easier we can make it for those small balances to move would make 

a big difference. 

Ms. TURNER-JOSEPH. The pieces that are needed to have portability are already in place. Unfortunately, plan participants have 

to be proactive when they leave an employer to make sure that 

they take their account balances with them. Now, under the law 

you cannot just roll any IRA amount into a qualified plan. The 

easiest IRA amount to roll into a qualified plan is if you use a conduit IRA, which is an IRA that is set up specifically to take in pension assets. Some plans take ordinary IRAs, but most plans do not. 

So, if you want the opportunity to move that from one plan to the 

other, then the plan participants have to be educated that when we 

quit, we move the monies to a conduit IRA. And a conduit IRA, you 

can comingle 10 different plan assets and it does not matter. And 

then you can move that back into a qualified plan if you want to 

have your money travel with you. So, it is there. Plan participants 

just have to be educated as to how to use it. And unfortunately, 

sometimes that is lacking. 

Mr. HAGEDORN. Very good. I see my time is up. I would agree 

with you though. Some of these amounts that you can maybe deposit into accounts each year, some of the tax implications, and I 

do not use this word lightly, need to be liberalized as far as I am 

concerned. 

Mr. EVANS. Right in the Midwest, the great state of Kansas, 

Ms. Davids. 

Ms. DAVIDS. Thank you, Chairman Evans. And thank you to everyone who came here to testify today. I appreciate it. 

So the first thing I want to start off—actually, I really appreciate 

the last conversation that we were just having. I would love to hear 

a little bit more. Mr. Hall, you had actually mentioned earlier educating folks and then we ended with Ms. Turner-Joseph just talking about that a few minutes ago. Can you talk a little bit about 

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what educating, when you think about it, what it looks like? And 

I am going to, somehow the two of you have things that are both 

very pertinent to what I am curious about here. In the graphs that 

you provided, Ms. Turner-Joseph, on participation and in 401(k) 

plans, it looks like if you aggregated the under $50,000 and then 

the under $100,000 plan participants, it looks like there is a pretty 

decent amount of participation. It is 34 percent and 32 percent, respectively, and then it drops off significantly as folks’ income, annual income increases. So I am curious, when we think about what 

educating folks looks like, Mr. Hall, is it just plan participation? Is 

it some of what got brought up last time about making sure that 

people continue to take their plans with them as we see more of 

a robust kind of mobile economy? 

Mr. HALL. Well, I think there are two pieces of education in this 

conversation. The one that I believe is important is a broader education concept mainly for people who are not involved in retirement 

savings now. Most of the surveys we have talked about, look at 

from either side of the discussion, most of them point to about half 

of the people are not saving for retirement today. And then whether they are saving the right amount, whether they are going to 

have the right amount, those are all complicated discussions. But 

when I think of education, I think of social media. I think of this 

hearing. I think of news outlets, the Small Business Administration, just a matter of focus on retirement as a concept so that the 

normal small business owner in Iowa or Kansas is aware that they 

are going to be 65 one day. And I think, I know it was when I was 

30, but when you are 30, you do not think you are ever going to 

be 65. And then you are 65 before you realize it. And I think just 

the awareness of the plan, the structure, what is going to happen, 

how things change, so that you then start looking at options. And 

I will defer, but there is also a second piece of education, and that 

is for people that are involved in a plan, recognizing that this is 

available to you, you need to maximize your contribution because 

the company is going to match it for you. And then when you do 

leave, it is portable. You can roll it over. So there is education for 

those that are involved already, and then the bigger role, we need 

everyone involved in putting money away for their own future. 

Ms. DAVIDS. And then the follow up I have to that is what 

about educating—so I am thinking about both the employees of 

small businesses and also the small business owners themselves. 

You mentioned Small Business Development Centers I think when 

you were doing your testimony. How are you looking at getting the 

small businesses educated as not just saving for retirement for 

themselves, but also using that to attract top talent because we 

know that small businesses are some of the folks who are worried 

about things, like pay and how they are going to attract top talent 

to their companies? 

Mr. HALL. And I think it is a big problem. Because I think, 

again, you go through the numbers. About one in three tax returns 

are going to have a small business attached to them. That still 

leaves two-thirds of the people that work for someone else. But of 

that two-thirds, half of those people work for a small business. I 

mean, it is the same people, right, but all those work for small 

business. And I believe with technology, as the world is getting 

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smaller, as people are working from home, I think we are going to 

find that the average size employee number, the average size of a 

business is going to fall. I think we are going to have companies 

that can do global operations, global fulfillment, global servicing 

with five people, none of them who live in the same state. And 

those are the types of companies that have difficulty in finding a 

plan because now they have got just a few number of people. The 

highly compensated testing is difficult because they just have a 

few. Safe Harbor is difficult. So now it becomes more expensive. So 

now how do we do that plan and maintain low cost? 

Ms. DAVIDS. Thank you. Thank you, Mr. Chair. 

Mr. GOLDEN. Thank you very much. I will now recognize myself 

for 5 minutes. This is my first action as Chair of this hearing. 

I wanted to ask Mr. Davidson, I think you touched upon a little 

bit talking about retirement enhancement saving provision and 

startup credit, which was designed to help small employers to set 

up retirement plans for their workers, currently capped at $500. I 

wanted to ask, how much does $500 pay for, and how common is 

it for an employer to dismiss it thinking that it is just not worth 

it to their business or to their employee? 

Mr. DAVIDSON. That is a great question. Thank you. And I 

would hate to ever say that $500 is meaningless. But you are right. 

I think it is discounted when they are trying to decide whether to 

start up a plan or not just because the cost and the long-term commitment you are making goes way beyond the $500. So while I certainly encourage any types of tax credits to help employers start 

a new plan I favor, but I think it has to be met with lowering the 

obligations that they have ongoing to make it really viable for the 

small employer. 

Mr. GOLDEN. Understood. Thank you. 

Just out of curiosity, what level of tax credit would it take for 

them to think? I mean, what would you have to raise that cap to 

for someone to instinctually think, well, that sounds like a good 

deal? 

Mr. DAVIDSON. From what we do, our lowest price is $85 a 

month. And it can go up to, depending on what your functions and 

features are, $150 a month. So does that put it in perspective the 

$500 for you? Yeah. So I think if you could raise that it would probably get more people’s attention. 

Mr. GOLDEN. Thank you. 

For anyone on the panel, and if there is time, each one of you 

could take it or you can just pick and choose amongst yourselves. 

Simple 401(k) SEP and other types of plans have strict and often 

complex rules depending on certain factors like the employee count 

or contribution limit. For example, simple 401(k) is only available 

to small companies with less than 100 employees. So I wanted to 

give you all an opportunity to talk about whether or not there are 

any changes that could be made to these types of plans to modernize and update them for workforces today. 

Mr. DAVIDSON. I guess I will start. There are a couple points 

I would like to make. One, there are different types of retirement 

plans. SEP, so forth. But I think we talked about recruiting earlier. 

The 401(k) has a brand, for lack of a better word. And while people 

may not understand the intricacies of it, everybody knows it is a 

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good thing and they should have it. So when you are doing your 

recruiting and you have your posting out on Indeed and you say 

you have a SEP or something, it marks you as a second level firm. 

I do not think it helps you in that. So I think rightly or wrongly, 

I think some of the different plans are not viewed as favorably. 

And to me, the ideal plan would be keep it as the 401(k) but alleviate the fact that the employer has so much responsibility and 

cost. Make it easier so the employer wants to offer it to his employee. Make it easier for him to offer it to his employer so everybody gets a chance to save. And that to me would be the ideal situation. 

Ms. TURNER-JOSEPH. I agree with Mr. Davidson that 401(k) 

is a brand. And if you are looking to expand coverage, you probably 

want to use that brand. Folks know about it, and so keep it there. 

What I would love to see is some changes that would allow small 

businesses to sponsor a 401(k) plan without some of the burdens 

that come with the legislation in terms of keeping the plan in compliance. If we could, for example, I keep going back to it because 

it is one of the things that in my work, I have met employers who 

would love to do a 401(k). They just cannot afford to do employer 

contributions. So, if something would be there, and it is in bills, we 

just need to get it passed, where an employer can sponsor deferral 

only 401(k), as a starter I think that would be very helpful. 

Mr. HALL. I totally agree. Again, going last, you have to just say 

I agree. But I think there are plenty of options out there. I think 

we talk occasionally about increasing limits. I think increasing the 

IRA limit, I would be in favor of that also. But I do not think increasing the limits is where the real problem is. It is getting people 

in. Doing the lowest contributions is where we need to start. 

Mr. GOLDEN. All right. Thank you very much. I will yield back 

5 seconds. 

And I will go ahead and recognize the gentleman from New Jersey, Congressman Kim, Chairman of the Subcommittee on Economic Growth, Tax, and Capital Access. 

Mr. KIM. Great. Thank you so much for coming. This has been 

incredibly helpful for me to understand. My district in New Jersey, 

Burlington County and Ocean County, a lot of retirement communities there, especially along other Jersey Shore. This comes up a 

lot, and it is also very much a small business district. A lot of small 

businesses from the Delaware River to the Jersey Shore. So a lot 

of what you are talking about really resonates with me. And it has 

been helpful. I mean, I think, when I think through it, you know, 

Mr. Hall, I thought your comments there just, you know, really 

simplified just trying to build that habit of getting people to really 

just start up, even if it is at a lower amount but just build that 

habit. And I think what you said about awareness, education, and 

simplifying was really helpful on that front. 

And Mr. Davidson, I think I would like to just build off of some 

of the points you just made, both you and Ms. Turner-Joseph. I 

would love to hear a little bit more about some of those burdens 

about the 401(k). You know, Ms. Turner-Joseph, you were talking 

about the employer contributions but if you can kind of just enlighten me with just some of the other issues that are out there if 

they were to try to set up. 

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21 

Ms. TURNER-JOSEPH. Some of the issues that small businesses 

have in terms of setting up the plan apart from the contribution 

is the actual cost of maintaining the plan. There are various nondiscrimination tests that have to be done with a plan. There are 

rules that the plan has to meet in terms of filing paperwork. And 

you know, to do most of that they are not experts themselves, the 

employers, and so they need help from outside experts which is 

why they hire people like myself to assist in maintaining the plan 

and doing all of the recordkeeping, and other work required for 

properly maintaining a plan. So that cost is something that an employer who is just starting out may want to shy away from. 

Mr. KIM. No, that is helpful. 

Mr. Davidson? 

Mr. DAVIDSON. Yeah. I think of it in two ways. For the small 

employer there are kind of two choices today. You can either go the 

Safe Harbor, which is basically 3 percent of your payroll, which can 

be a big cost just so your employees can save. The other side you 

go without making a mandatory contribution but you are subjected 

to annual compliance testing. And when you are a small employer, 

one employee leaving can throw you out of compliance and all of 

a sudden you can be hit with a big bill, which is unbudgeted, unexpected. And many small businesses do not want to take that risk. 

They were planning on that money for a new truck or a new oven 

or hiring a new employee and all of a sudden they get a surprise 

bill from us. It is not a welcome happenstance. 

So if we can take that requirement away, and I would say the 

other part is the fiduciary responsibility. If we allow them to 

outsource the fiduciary responsibility, my experience is most employers want their employees to save. They want their employees 

to do well. They just, when they weigh the cost, it is the cost of 

the new truck or sending their daughter to college, and sometimes 

retirement plans fall second. So if we can alleviate that I think we 

can see the vast majority of American workers saving. 

Mr. KIM. That is helpful. 

Mr. Davidson, I want to return to something you said earlier in 

response to a question. You had cited this statistic that I often use 

which is that 40 percent of Americans cannot handle a $400 emergency. 

Mr. DAVIDSON. Right. 

Mr. KIM. And something that you said in response to that was 

about allowing employee access to the 401(k) without penalty. Can 

you give me a little bit more detail on how that would help alleviate some of the concerns with people who are living with that fragility in life? 

Mr. DAVIDSON. Sure. So in my perfect world, I would like to 

see it easier for the employer to offer a plan, but he offers it, or 

she offers it with automatic enrollment. In other words, everybody, 

first day, we sign them up for 3 percent contribution in. Now, they 

have an option. We give them 60 days, or 90 days, or however long 

that they can get out of it, but you try to start them immediately 

on that and you get them in the habit of doing the savings. And 

then, the American public has different needs. I think a lot of them 

will not touch it until retirement, and that is what you want. Some 

may need it to pay their college loans back, or those who really 

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22 

cannot get to work tomorrow because the car needs new tires. And 

if we can get all those people saving and we could have some kind 

of a rule that you could take 25 percent out of your plan every 3 

years or something, I think those that are at the lowest incomes 

would be more likely to let that 3 percent grow knowing it could 

help them. And it would also alleviate them having to go find the 

money to get those new tires to get the car to work tomorrow. 

Mr. KIM. Yeah. No, I appreciate that. Thank you so much for 

helping enlighten me. And I look forward to staying in touch and 

figuring out how we can implement some of these. 

I will yield back the balance of my time. 

Mr. GOLDEN. With that I would ask if Mr. Kim has an interest 

in asking an additional round. Because it would be that time. If 

you had more questions you can go ahead and ask them. 

Mr. KIM. Well, I guess just my last question I guess would be, 

you know, with where we were just going off of with the 401s, you 

know, I would like to get just sort of the thoughts of the other two 

participants, Mr. Gorgone and Mr. Hall. You know, if they share 

some of those same recommendations, if there are any concerns or 

thoughts? I mean, I am intrigued by what Mr. Davidson said about 

allowing employees to access the 401(k), but obviously, I will also 

have some concerns about people going into that too much. You 

know, so I know there has got to be sort of a balance there. But 

I am intrigued by just sort of the assessments of the other two. 

Mr. HALL. Well, I do agree with it. I think, again, it is an interesting time. I would say before I knew that there were three states 

right now that are already doing it I would say you cannot make 

people save. They need to want to save. They need to know the 

need to save. Now, I am very interested to see how those states 

work because that might be something to consider because, you 

know, if my mom were standing here she would tell me she knows 

what is good for me and would tell me what to do and I would 

probably do what she said. But at some point it still comes back 

to education. I think people need to be aware. I think anybody who 

is a Harry Potter fan, I think Albus Dumbledore said it is unreasonable to expect a young man to know what it is like to be an old 

man, but it is unforgiveable for an old man to forget what it is like 

to be a young man. And I think when you are young, I remember 

not thinking I needed to worry about that topic. So I agree with 

the concern on over saving. I certainly do not want them to put 

away 3 percent of their newly earned savings and then not be able 

to buy bread. That is not fun. But at some level there should be, 

or I would encourage involvement via automatic enrollment at 

some level to start building that habit because I think that is critical. 

Mr. KIM. No, I appreciate that. 

Mr. Gorgone, do you have any thoughts here? Any other wisdom 

from children’s books? 

Mr. GORGONE. I think one of the challenges with having people 

enroll in a 401(k) is in their mind they are putting money away 

and I can never touch it. It is like I do not have it. And in case 

of an emergency, well, I need access to those funds. There are features of 401(k)s that allow people to take loans against the 401(k) 

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23 

terest. I think the more fundamental problem though is not the 

fear of not being able to have the funds available, because if that 

were the only issue, more than 40 percent of the people would have 

$400 in savings. And they would have other mechanisms by which 

they have saved that money that made it available to them. I think 

when we look across the board, the cost of student loans, the cost 

of health care, the cost of housing, the cost of a lot of things that 

we need in our day-to-day lives are a lot more expensive today than 

they were yesterday. And my dad has always said you can only 

spend a dollar one way, and you have got to be careful how you 

spend it. So given a choice between health insurance or housing or 

student loans or retirement and I am 30 years old, guess which one 

loses. 

Mr. KIM. And no, that is right. And look, this is something that 

is really at the core of what I am trying to do here in Congress. 

I just spoke at a press conference yesterday talking about how 

when asked by a journalist how I will measure my success here in 

Congress, I told them it would about the 40 percent of Americans 

that cannot handle a $400 emergency and trying to drop the number of Americans that are constantly at that precipice of fragility. 

I am trying to figure out how we can help them save, how we can 

help them understand that they do not have to make these important tradeoffs between student debt, health care, retirement, and 

other aspects. So look, you know, we are not going to be able to 

solve these all right here, right now in this hearing, but I hope to 

be able to continue to draw upon your expertise, your experience, 

as we try to think of what tools we can that we will be able to comprehensively address that issue. So thank you so much again for 

your time. 

I yield back my time. 

Mr. GOLDEN. Thank you very much. 

Well, I would like to thank all the witnesses for taking time out 

of your schedules to join us here today to talk about an important 

issue. Retirement security is one of the most important issues facing Americans today. Retirement benefits not only provide future 

financial security for business owners and employees, but also 

allow entrepreneurs the ability to attract and retain talented individuals as their businesses grow. It is clear from this hearing that 

improvements to the retirement system must be made to meet the 

needs of business owners, their employees and entrepreneurs. I 

know by having scheduled and called for this hearing, the Chairwoman thinks this is a real priority, and she and the Ranking 

Member look forward to working with members on both sides of 

the aisle in this Committee to address this important issue. 

And with that, I would ask unanimous consent that members 

have 5 legislative days to submit statements and supporting materials for the record. 

Without objection, so ordered. 

And if there is no further business to come before the Committee, 

we are adjourned. Thank you. 

[Whereupon, at 12:49 p.m., the Committee was adjourned.] 

[Questions submitted to Mr. Paul F. Davidson from Hon. Troy 

Balderson were not submitted in a timely manner.] 

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24 

A P P E N D I X 

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AMERICAN 

~ RETIREMENT 

~ ASSOCIATION 

Statement of Martella Turner-Joseph, MSPA 

On behalf of the 

American Retirement Association 

House Small Business Committee Hearing on 

Unlocking Small Business Retirement Security 

March 27, 2019 

Thank you, Chairman Velazquez, Ranking Member Chabot, and the other members of the House Small 

Business Committee for the opportunity to speak with you about how to achieve a secure retirement 

for small business owners and their employees, My name is Martella Joseph and I am an enrolled 

actuary. My husband Eugene Joseph and I are co-founders and partners of Joseph & Turner Consulting 

Actuaries, LLC located in Central Harlem, New York City. Joseph & Turner Consulting Actuaries, 

LLC provides actuarial, consulting, and plan administrative services for retirement plans covering 

thousands of participants. 

I am also a member of the American Retirement Association and served on the Board of Directors of 

the organization for 12 years. The American Retirement Association (ARA) is an organization of more 

than 25,000 members nationwide who provide consulting and administrative services to millions of 

American workers, savers and the sponsors of retirement plans. The ARA is the coordinating entity 

for its five underlying affiliate organizations, the American Society of Pension Professionals and 

Actuaries (ASPPA), the ASPPA College of Pension Actuaries (ACOPA), the National Association of 

Plan Advisors (NAPA), the National Tax-deferred Savings Association (NTSA) and the Plan Sponsor 

Council of America (PSCA). The ARA has two key missions: to educate and inform retirement 

benefits professionals like myself and to advocate for policies that give every working American the 

ability to have a comfortable retirement. 

Today, I want to convey the following points: 

Despite the retirement industry's best efforts, too many Americans lack access to a workplace 

retirement plan. 

Increasing the availability of workplace savings plans will increase the financial and 

retirement security of American families. 

Congress needs to address this coverage gap by enacting the first comprehensive retirement 

legislation in over a decade and by incentivizing small businesses to offer their employees 

access to a payroll deduction savings program. 
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Why Workplace Retirement Plans are Essential 

For most Americans especially those with more moderate income- the key to a secure retirement is 

having access to a workplace-based retirement savings plan. Moderate income earners almost 

exclusively save at work through plans like the 401(k) -the most widely known section of the tax code. 

Workers earning between $30,000 and $50,000 per year are twelve times more likely to save for their 

families' retirement at work than to set up an IRA and save on their own (see figure one). 

90% 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

Figure One 

Effectiveness of 401(k) Plans- Participation Rates 

78.0% 

Not Covered Covered 

Source: Vanguard, !IOH' America Saves 2018 (DC plan participation); 

EBRI estimate based on 2015 IRS SOL tabulation (IRA-only participation) 
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Middle-class workers are the primary beneficiaries of 40l(k) plans. Sixty-six percent of active 

participants in 40l(k) and other profit sharing plans have an adjusted gross income of less than 

$100,000 per year. Thirty-four percent of participants in these plans have income less than $50,000 

per year (see figure two). 

40% 

35% 

30% 

25% 

20% 

15% 

10% 

5% 

Figure Two 

Distribution of Active Participants in 401(k) Plans 

< $50.000 $50.000- $100,000 $100.000-

$150.000 

$150.000. 

$200.000 

Source: Internal Revenue Service. Statistics offncomc. 

Individual Income Tax and IRA Studies- 2015 

> $200,000 

Simply stated, saving at work, works. That is why it is critical that businesses- pm1icularly small 

businesses- are encouraged to maintain workplace retirement plans. 

The Retirement Savings Tax Incentives Underpin the Workplace Based System 

The current tax incentives for workplace-based retirement savings plans are efficient and effective in 

encouraging Americans across the income spectrum to build a secure retirement. As someone who 

talks to small business owners about these plans every day, I can tell you that these tax incentives are 

a critical component in a small business owner's decision to set up and maintain a workplace retirement 

plan. The contribution limits to workplace retirement plans are higher than for JRAs. However, in 

exchange for these higher contribution limits, these plans are subject to coverage and nondiscrimination 

rules that require employer contributions on behalf of employees to maximize the contributions for the 

owner. For a small business owner, the ability to use tax savings on his or her contributions to generate 

all or part of the cash flow needed to pay these required contributions for other employees is an 

important factor in the decision to establish and maintain a workplace retirement plan. 
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How do retirement savings tax incentives differ from other incentives? 

Unlike many tax incentives, the tax incentives for retirement savings are not permanent deductions or 

exclusions from income. As long as the savings remain in the plan, the taxes are only deferred until 

later years when distributions are made from the plan. The distributions are then subject to tax at 

ordinary income tax rates, even though lower capital gains and dividends rates may have applied if 

the investments had been made outside of the plan. 

What are the current/ax incentives? 

Employer (a.k.a. plan sponsor) contributions to a qualified retirement plan are tax deductible to the 

employer and are not subject to FICA taxes. Taxes on any investment earnings on the contributions 

are deferred and then taxed at ordinary income rates upon distribution. When an employee (a.k.a. plan 

participant) receives a distribution from the plan, those amounts are also subject to ordinary income 

tax rates. For lower-income workers, a Savers Credit is available to qualifying individuals with 

adjusted gross income (AGl) of less than $38,500, and married couples with AGI ofless than $64,000. 

The tax credit ranges from 10% to 50% of the first $2,000 the individual contributes to an employersponsored defined contribution plan or IRA. 

Limits are placed on both contributions to detined contribution plans and benefits payable from defined 

benefit plans (pension plans): 

Certain defined contribution plans permit employees to elect to have a certain dollar amount or 

percentage of compensation withheld from pay and deposited to the plan. These "elective 

deferrals" are excludable from income for income tax purposes, but FICA is paid on the 

amounts by both the employer and the employee. For 2019, the maximum annual elective 

deferral to a 401 (k) or similar plan is $19,000. Employees age 50 or over can also make an 

annual "catch-up contribution" of up to $6,000. Annual elective deferrals to a SIMPLE plan 

are limited to$ I 3,000, plus a $3,000 per year catch-up contribution for those age 50 or over. 

• lf the employer also contributes to a defined contribution plan (such as a 401(k) plan) the 

maximum annual contribution per employee is $56,000. A plan participant that is age 50 or 

over, and who makes the full $6,000 catch-up contribution to the plan, would have a total annual 

limit of$62,000. 

• The maximum annual benefit payable to an individual from a defined benefit plan cannot 

exceed the lesser of the average of three year's pay or $225,000. If retirement is before age 62, 

the dollar limit is reduced. Employers can deduct the amount required to fund promised 

benefits. 

Annual IRA contributions are limited to $6,000, plus "catch-up" contributions of $1,000 for 

those age 50 and over. 

Compensation more than $280,000 cannot be considered in calculating contributions or in applying 

nondiscrimination rules under either defined benefit or defined contribution plans. For example, if a 

business owner makes $400,000, and the plan provides a dollar for dollar match on the first 3% of pay 

the participant elects to contribute to the plan, the match for the owner is 3% of $280,000, not 3% of 

$400,000. 

4 
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What are the Current Nondiscrimination Rules? 

Higher contribution limits for qualified retirement plans- both detined contribution and defined benefit 

plans - come with coverage and non-discrimination requirements. For example, a small business 

owner with several employees cannot simply open a defined contribution plan and contribute $56,000 

solely to his or her account. Other employees who have attained age 21 and completed one year of 

service with at least 1000 hours of work must be taken into consideration, and the employer must be 

able to demonstrate that benefits provided under the plan do not discriminate in tavor of "Highly 

Compensated Employees" (''HCEs"), which would include the owner. 

Generally, contributions or benefits that are proportionate to an individual's compensation are 

considered fair. Age can also be considered when determining the amount of contributions that can be 

made on a participant's behalf. A larger contribution (as a percentage of pay) can be made for older 

employees because the contribution will have less time to earn investment income before the worker 

reaches retirement age (usually age 65). Safe harbors are also available. For example, if all employees 

covered by a 401(k) plan are provided with a contribution of3% of pay that is fully vested, the liCE 

can make the maximum elective deferral, regardless of how much other employees choose to contribute 

on their own behalf. 

These nondiscrimination rules, coupled with the compensations limits that can be considered under 

these arrangements, are designed to ensure that qualified employer-sponsored retirement plans do not 

discriminate in favor of HCEs. Non-discrimination rules do not apply to other forms of tax-favored 

retirement savings. For example: 

IRAs share the incentive of tax deferral. However. if a small business owner makes a 

personal contribution to an IRA, there is no corresponding obligation to contribute to other 

employees' IRAs. However, under the current rules, the contribution limit for lRAs is set 

low enough (and the limit for employer-sponsored plans high enough) to make a qualified 

retirement plan attractive to a business owner who can afford that type of plan. 

Annuities purchased outside of a qualified plan share the benefit of "inside buildup"- the 

deferral of income tax on investment earnings until distributed from the arrangement- but 

have no limit on contributions or benefits, and no non-discrimination requirements. 

This means the attraction of a workplace retirement savings plan for a small business owner is heavily 

dependent on the interaction of non-discrimination rules and the tax incentives for saving through a 

workplace retirement savings plan. 

Expanding Workplace Retirement Plan Coverage 

It has been 13 years since Congress enacted comprehensive retirement legislation, the Pension 

Protection Act of2006. Since then. the retirement marketplace has continued to innovate through 

new retirement-related products, financial wcllness tools, and decumulation strategies, but public 

policy enhancements that could assist the innovations in the retirement arena have not kept pace. 

I recognize that, despite the retirement industry's best efforts, far too many Americans lack access to 

a retirement plan at work. Increasing the availability of workplace savings plans will increase the 

financial and retirement security of American families. There are actions that Congress can and 

should take to address this lack of access. An excellent first step would be to make it easier and more 

meaningful for a small business to adopt a workplace retirement savings plan. 
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I support proposals that will both enhance the incentives for and simplify the administration of 

workplace-based retirement savings plans. Many of these proposals were included in the bipartisan 

and bicameral legislation called the Retirement Enhancement and Savings Act or RESA. RESA 

includes several provisions that, when taken together, will make it easier for small businesses to 

adopt and maintain a workplace-based retirement savings plan. 

RESA increases the incentives for small business owners to offer a qualified retirement plan by 

significantly increasing the tax credit available to small employers who offer a plan. Further, it adds 

a new credit to encourage plan designs that automatically enroll workers into plans with the ability to 

opt-out, a practice proven to be successful to increase plan participation. RESA allows business 

owners the proper time to decide whether to adopt a qualitied retirement plan by extending the 

deadline up until the due date of their tax return since it is only then when those decision makers 

know their true financial situation. RESA gives plan sponsors increased flexibility to choose an 

administratively streamlined 40l(k) safe harbor plan with generous employer contributions for rank 

and tile workers. All these provisions are sorely needed because small businesses face real 

challenges when deciding to provide a retirement benefit. These new policies will help these 

businesses make that critical decision with more certainty, clarity, and confidence. 

While RESA would improve retirement plan coverage. I also recognize that this could still not be 

enough to get some businesses to act and that a further nudge is needed. I believe that any 

requirement placed on employers to offer employees access to a payroll deduction savings program 

should be designed to minimize the burden on the employer while achieving the desired policy 

outcome of increasing the availability of workplace savings opportunities. 

I applaud Congressman Richard Neal, now Chairman of the House Ways & Means Committee, for 

his continued effort for more than a decade now to make the availahility of workplace savings as 

widespread as possible. Chairman Neal's Automatic IRA and Automatic Retirement Plan bills will 

close the retirement plan coverage gap to the greatest extent possible while imposing the minimum 

possible burden on employers. This approach leverages existing private sector solutions in the 

marketplace instead of replacing the entire system with a government-run program. These approaches 

deserve serious consideration and widespread support. 

Student Loans and Retirement Savings 

A separate legislative proposal would encourage participation in workplace retirement plans, 

particularly among the millennia! generation. The proposal aims to solve a vexing issue for 

millennia! workers how to save for retirement while decreasing student loan debt. The proposal -

included in Senator Wyden's Retirement Parity for Student Loans Act and Senators Portman and 

Cardin's Retirement Security and Savings Act from the last Congress would allow employees to 

receive employer matching contributions into their 401(k) plan account based on the student loan 

payment amount. Student loan repayments would be treated as if the individual were contributing to 

their 401(k) plan. which would enable the individual to not miss out on the "free money" on the table 

that represents the employer matching contribution. 

I support a much-needed improvement to this legislative proposal that would allow this innovative 

plan design to he more attractive to small businesses. The proposal needs to clarify that student loan 

payments that are matched would be treated as elective deferrals for purposes of the 

nondiscrimination test called the "Actual Deferral Percentage" or "ADP" test. The ADP test is 

critical to ensure a retirement plan is not favoring highly compensated employees. Otherwise, the test 
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would be significantly harder to pass, especially for small businesses, since the individuals with 

student loans would most likely be non-highly compensated employees (NHCEs) who would not 

have the resources to make elective deferrals. 

Summary 

Access to a retirement plan at work plays a critical role in ensuring moderate income earners achieve 

a secure retirement. The workplace-based retirement system has done extremely well for employees 

who are offered a plan at work. Our primary challenge is to expand access to this successful system 

and help more small businesses to offer a plan. Congress must promptly enact a long overdue 

comprehensive retirement bill with the proposals discussed above included to address this challenge. 
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House Committee on Small Business 

"Unlocking Small Business Retirement Security" 

Testimony of Paul F. Davidson 

Paychex, Inc. 

March 27, 2019 

Chairwoman Velazquez, Ranking Member Chabot, and members of the Committee, good morning and 

thank you for the opportunity to testify today. My name is Paul Davidson and I am the Director of 

Product Management at Paychex, Inc. I have worked in the small business retirement space for over 30 

years and believe retirement security is a critical issue facing our country. I applaud the work that 

Congress and this committee are doing to try to address the challenges many small business owners and 

employees face when it comes to saving for retirement. 

Paychex, Inc. (NASDAQ: PAYX) is a leading provider of human capital management solutions for payroll, 

benefits, human resources, and insurance services. Paychex began as a small business itself. It was 

founded in 1971 with just $3,000 and a good idea-to make payroll outsourcing easy and affordable for 

small businesses. By combining technology with dedicated, personal service, Paychex empowers smalland medium-sized business owners to focus on the growth and management of their business. 

Paychex serves over 650,000 small business payroll clients across more than 100 locations in the U.S. 

and Europe, and pays one out of every 12 American private sector employees. With an average client 

size below 20 employees, most of our customers are true mom and pop small businesses. 

When I started at Paychex in 1994, very few small businesses were offering a retirement plan for their 

employees. With the belief that saving for retirement should be an employee benefit accessible to all, 

and not just those that work for large companies, we set out to build a 401(k) product that would be 

affordable and easy for small businesses to adopt. With a concentration on the micro market, we sought 

to simplify and minimize the administrative burden for the employer, allowing businesses to offer 

employees state-of-the-art retirement benefits. 

Paychex now administers more than 80,000 401(k) plans for small businesses, making us one of the 

largest record keepers in the U.S. based on number of plans serviced. last year alone, we worked with 

over 14,700 small businesses to start new retirement plans. 

While we are very proud of that accomplishment, to this day, over 70 percent of Paychex's small 

business payroll clients still do not offer a retirement plan benefit. As this committee well knows, while 

the retirement crisis impacts all types of American employers and employees, it has a disproportionate 

impact among small businesses. According to a Paychex Small Business Survey, more than half (53 

percent) of small business owners don't have a formal retirement savings program at their business. At 

the same time, 69 percent of small business owners in our research declared zero to little financial 

preparedness for their retirement.' 

1 Paychex Small Business Survey found .Q!':C.~· 
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Among the general population, 28 percent of non-retired adults have no retirement savings and 35 

percent private sector workers age 22 and older don't work for an employer that offers a formal 

retirement savings program. 2 

Our current policies put heavy responsibility on the small employer if they offer a qualified plan. They 

can either pay an extra 3% of payroll into the plan to get the assurances of safe harbor or they can leave 

themselves vulnerable to the ADP/ACP and top heavy testing. If they become out of compliance, which 

is easy with a small number of employees, they often face large unexpected and unbudgeted costs. 

We believe there are a variety of policy changes that can be made that would significantly increase the 

number of small businesses able to offer retirement plans to their employees. Congress has begun 

taking action, and I believe many of the proposals are steps in the right direction. 

For example, the Retirement Enhancement and Savings Act (RESA) that initially came out of the Senate 

Finance Committee makes a number of changes that would be helpful to small businesses. Provisions 

include an increased tax credit for small employer plan startup costs, incentives for small employers to 

have automatic enrollment, and favorable changes to Safe Harbor Plans. I know the House is also 

working on similar legislation and we believe the bill would be a good first step. 

Senators Rob Portman (R-OH) and Ben Cardin (D-MD) also have been working on bipartisan legislation, 

the Retirement & Security Savings Act, which would be beneficial to small businesses and their 

employees. In addition to expanded tax credits and provisions around automatic enrollment, their bill 

provides eligibility for part-time workers, a saver's credit, and the ability for employees to receive a 

401(k) match for paying their student loan. 

We appreciate the strong leadership of House Ways & Means Committee Chairman Richard Neal (D-MA) 

on retirement issues. We support his longtime dedication to improving our retirement system and 

getting more Americans covered. 

And, of course, we commend this committee for making retirement security a priority and for ensuring 

that small businesses are a critical part of the conversation and solution. 

In addition to much of the good work that is going on across Congress in this space, we believe there are 

additional steps that could have an even more dramatic impact. When we discuss retirement plans with 

our small business customers, the obstacles to offering a plan really come down to three areas: 

complacency, complexity, and costs. 

It's important that we don't segregate American workers by the size of the company they work for. Our 

existing policies have achieved maximum penetration in the large and mid sized market. Now we need 

to focus on lowering the burden on the employer so all workers, even those at small companies, can 

save for a dignified retirement. 

Small business owners are extremely busy, and offering a retirement plan is not always at the top of 

their priority list. We believe the tax credits discussed above can help move the needle on that issue. 

2 Pew research found 
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But for many small businesses, offering a retirement plan is also just too complex. It comes with a 

fiduciary responsibility, liability, and reporting requirements. 

Finally, costs are a significant reason why small businesses don't offer a plan, whether it is the 3% match 

for a safe harbor plan or getting hit with an unexpected bill at the end of the year after compliance 

testing. 

I believe you could dramatically increase the number of small businesses offering retirement plans if you 

address each of these head on. An ideal plan for many small businesses would include providing a safe 

harbor that did not require a match, while also allowing small businesses to outsource some of the 

fiduciary responsibility to professionals. Making all employees immediately eligible and requiring 

automatic enrollment for the plan is another step that could eliminate the need for top-heavy, 

ADP/ACP, and coverage testing. Then the business would know their costs at each payroll and would not 

be surprised by a cost driven from compliance failure. As a result of these changes, small businesses 

would be able to offer a plan that was simpler, less expensive, and more accessible to employees. 

In closing, most small businesses that we meet with want to offer an employee retirement plan. 

However, once they consider the cost and regulatory burdens, many choose to not move forward. 

Making it simpler, easier, and less expensive for small businesses to offer retirement savings programs 

for employees is sound public policy and the right thing to do for American small businesses and 

workers, allowing all Americans to save for a dignified retirement. 

I thank the Committee for their leadership on small business retirement issues and for the opportunity 

to participate in this discussion today. 
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ATTACHMENT 
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Increasing .. RetireJ11ent 

Through 

Empl 

Retirem 
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The 3 C's of the Small 

Business Retirement Crisis 

The retirement crisis impacts al! types of American 

employers and employees. Big and small, new and 

established, across all 50 states. Data from the Federal 

Reserve Board shows that 28 percent of non-retired 

adults have no retirement savings. And current 

conditions don't bode well for turning these numbers 

around. According to f©§~.§I.Q.b from the Pew Charitable 

Trusts, 35 percent of private-sector workers age 

22 and older don't work for an employer that offers 

a defined contribution plan or a traditional defined 

benefit plan. Among small businesses, the percentage 

offering these programs is even lower, as owners face 

unique challenges, fears, and uncertainties when they 

consider retirement plan options for both themselves 

and their workers. 

In fact, more than half (53 percent) of small business 

owners don't have a formal retirement savings program 

at their business, according to a recent PaJLcbe~ S.m_aJL 

Susine'L'LSlliY.<?l'· At the same time, 69 percent of small 

business owners in Qill_ reseag;h declared zero to little 

financial preparedness for their retirement. When 

asked whether they'll be financially prepared to stop 

working sometime between the ages of 61 and 65, 

21 percent of respondents said they were "not at all 

confident." This problem doesn't remain isolated to 

the individuaL It impacts families and communities, 

puts added strain on public benefit programs, and 

contributes to late life debt of would-be retirees. 

53% of small business 

owners don't have a formal 

retirement savings program 

L 69% of small business owners 

declare zero to little confidence 

in their retirement readiness 

PAYCHEJ(' Increasing Retirement Coverage 

28% of non-retired adults 

have no retirement savings ~ 

l 35% ofprivate-sectorworkers 

age 22 and older don't work for 

an employer that offers a formal 

retirement savings program 

The reasons many small business owners are reluctant 

to offer retirement programs can be grouped into 

three categories. 

Complacency. 

Business owners bank on the idea that they'll be 

able to fund their personal retirement by selling 

their business. But in many cases business owners 

believe their company is worth more than it isputting them in a precarious position by delaying 

saving for their own retirement and leaving their 

employees without a formal means to invest in their 

retirement. 

Complexity. 

Most small business owners are focused on running 

a profitable and successful business and often 

don't understand the responsibilities or liabilities 

associated with offering a plan. 

Costs. 

In our survey, 59 percent of small business owners 

stated they didn't think they could afford to offer 

a retirement plan. The out-of-pocket and in-plan 

expenses associated with providing a plan are 

considered simply too burdensome. 

The reality, though, is that growing a business and 

offering retirement benefits can go hand in hand. 

Our research found that 72 percent of small business 

owners who offer retirement benefits say that it's 

beneficia! to their business. Not to mention the 

expansive and growing support for federal action 

by companies, both large and small, advocacy 

organizations, and the Trump administration-as 

evidenced by the late-August 2018 Executive Order. 

2 
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Tackle Complacency, 

Complexity, and Cost 

The problems faced by business owners that limit 

their willingness to provide retirement savings 

programs for employees don't need to be addressed 

by a new sweeping entitlement program or unwanted 

growth of the national debt Put simply, the following 

strategies and detailed policy recommendations work 

to fix the systemic problems impeding long-term 

financial planning for so many American workers. 

• To address complacency, policy should offer 

additional incentives such as tax credits for 

employers to start a retirement program. 

• To address should relieve 

the companies' fiduciary responsibilities or allow 

both investment and administrative fiduciary 

coverage to be transferred to service providers. 

• To address costs. policy should redefine the 

parameters of Safe Harbor plans to remove 

required contributions. Plan design needs to 

allow for streamlined administration and 

processing, so costs will be known ahead of 

time and budgeted for. Equity is achieved not 

by end-of-the-year testing but by auto-enrolling 

with contribution limits. 

i Increasing Retirement Coverage 

Ideal Plan Design 

Ideal policy contains six elements to help small 

business owners provide retirement savings 

programs for employees, specifically by eliminating 

what stands in the way: complacency, complexity, 

and cost. When designing multiple employer plans 

or other retirement savings plans, the essential 

features that should be addressed are: 

i. Eligibility 

2. Auto Features 

3. Employer Contributions 

4. Fiduciary Protection 

5. Compliance Testing/Reporting 

6. Safe Harbors 
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1. Eligibility 

Employee Contributions: I I Employer Contributions Withdrawals 

Eligibility and Notification 

• All employees should be immediately 

eligible to participate in the program. 

This would ensure that all employees 

have the opportunity to participate 

and eliminate the need for minimum 

coverage testing. To standardize, 

we encourage no exclusions 

and all employees be eligible to 

participate immediately upon hire. 

Providing a ret1rement savings 

program for employees can only 

work when employees are eligible 

for the program and informed of its 

existence. 

• The employer should notify each 

new hire, at time of hire, and all 

employees should receive annual 

notices of the retirement savings 

program offered, an explanation of 

why 1t's centra! to a future of financial 

stability, and encouragement to join. 

Creating a culture of employees 

feeling supported by their employer 

to contribute can positively 

impact enrollment. 

• There should be a maximum 

contribution amount, for example, 

the greater of 1 0 percent of wages 

or $25,000 annually. 

2. Auto Features 

• Employers can impose a oneyear waiting period on employer 

contributions such as employer 

match or profit sharing. But this 

one-year waiting period should not 

impact the employees' contribution. 

The earlier participation JS 

encouraged and happens, the more 

l1kely employees Will ma1ntain the 

habit of contributing in the future. 

• Employees fear that their money 

wiU be "tied up" with high penalties 

should they need it in an emergency 

scenario, termination, or family crisis. 

We recommend that employees be 

able to take out a certam amount 

without penalty to meet their needs. 

For example, employees could 

withdraw 25 percent up to $100,000 

of their vested money on an annual 

basis with no penalties, but any pre~ 

tax contributions and earnings would 

be taxed at time of distribution. By 

allowing withdrawal with the only 

payment being the taxes owed on 

contributions that were made with 

pre-tax dollars, employees will 

be more l!kely to save money in a 

program. By removing the 10 percent 

early withdrawal penalty, employees 

will be better positioned and more 

comfortable to contribute to their 

savings plan. 

• Employees should be eligible to take 

loans of up to 50 percent of their 

vested balance. 

• All employees should be 

automatically enro!ted in 

the retirement savings 

program. While enrollment 

is automatic, to encourage 

participation, employees 

can opt out at any time. 

• One of the more important 

pieces of advice a 

financial adv1sor will give 

to someone setting up 

• Employees investments 

should be autorebalanced at least 

twice a year 

• If an employee is 

terminated and no 

contributions are made 

for 18 months, the 

account balance should 

be automatically rolled 

over to an IRA. 

If the employee opts 

out within the first 90 

days, 1 00 percent of 

contributions can be 

withdrawn without penalty. 

• Employers can select an 

auto-enrollment rate of 

from three to five percent 

of employees' incomes. 

a retirement program is 

to increase contributions 

as he or she earns more 

money. On employees' 

anniversary date, 

contributions should 

be increased by one 

percent annually, up to a 

maximum of 10 percent 

Employees can opt out 

of this auto-escalation at 

any time. 

PAYCHEX ! Increasing Retirement Coverage 4 
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3. Employer Contributions 

• Employers can offer a match up to a 

maximum of 100 percent 

• Profit sharing allocation can be 

allocated pro rata based on 

payroll wages. 

• Employer match should vest 

immediately. There should no longer 

be a delay in when the employers' 

money becomes the employees' 

money in matching programs. 

• Maximum profit sharing allocation 

of 20 percent of payroll wages. 

4. Fiduciary Protection 

• Profit sharing contrlbutlon should 

vest over three years or less. 

Investment Fiduciary I Administrative Fiduciary 

• The plan should offer a 3{38) or 3(21) investment fiduciary to 

ensure the plan has an investment policy statement 

• The investment fiduciary should provide a fiduciary report 

to each employer on a quarterly basis and on demand to all 

employees. 

5. Compliance Testing/Reporting 

• The plan administrator can elect to outsource the fiduciary 

responsibilities to either an independent third party or the 

hired recordkeeper!TPA to act as the fiduciary regarding 

plan administration. 

Remove Testing Requirements I Government Reporting 

• ADP/ACP testing 

• Top-heavy testing 

• Coverage testing 

6. Safe Harbors 

• Auto-enrollment, ~escalation, and -rebalance features 

should be offered in the plan. 

• Eligibility and vesting rules should be met and maintained. 

• Employee payroll-deducted contributions and loan 

repayments should be invested within five business days. 

• Participant account balances and rules of plan should be 

made available at all times. 

PAYCHEJC I lncreasingRetirementCoverage 

• Annual reporting to the Department of labor/Internal 

Revenue Service should be provided by the plan, reducing 

the need for a 5500 tax form, 

• The plan should provide to the government beginning 

account balance, contributions, withdrawals, and 

ending account balance. 

• No required employer contribution. 

• No compliance testing. 

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U.S. Women:r Chamber 

of Commerce 

U.S. Women's Chamber of Commerce 

uswcc.org 

Testimony of 

Greg Gorgone 

Chief Financial Officer 

Citizant, Inc. 

{citizant.com) 

Chantilly, VA 

Before the 

House Small Business Committee 11Unlocking Small Business Retirement Security" 

11:30 A.M. on Wednesday, March 27, 2019 

Room 2360 of the Rayburn House Office Building 

U.S. Women's Chamber of Commerce• I 700 12th Street, NW, Suite 700, Washington, D.C. 20005 I (202) 607·2488 

www.uswcc.org 

I 
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U.S. Wumens Chamber 

of Commerce 

Chairman Velazquez, Ranking Member Chabot, and Members of the House 

Small Business Committee, thank you for the opportunity to speak today. 

Small businesses- who employ more than 59 million citizens, 47.5% of all 

private sector employees1 - face a myriad of challenges when it comes to offering 

retirement plans to their workforce. Chief among these challenges are the expense 

related to employer contributions, limited administrative resources, and lack of 

employee interest. The smaller the business, the more these challenges impact the 

decision to offer a retirement plan. 

In a study published by The PEW Charitable Trust in January 20172

, they noted 

that: 71% of small business owners surveyed stated is was too expensive to set up a 

retirement plan, 63% of the respondents stated their organization did not have the 

resources to administer a retirement plan, and SO% stated their employees were not 

interested in participating in a retirement plan. 

While it is certainly true that employees of small businesses not offering formal 

retirement plans still have retirement options available to them in the form of IRA's, 

the income deferral incentives related to IRA plans pale in comparison to traditional 

401(k) plans. In 2019, the maximum income deferral for an IRA is $6,000, whereas 

the maximum income deferral under a 401(k) plan is $19,0003• Furthermore, 

employees working for small businesses that do not offer 401(k) plans are missing out 

1 Frequently Asked Questions About Small Business, U.S. Small Business Administration Office of Advocacy, August 2018 

· https:l/www.sba.gov/sites/default/files/advocacv/Frequently·Asked·Questions-Smaii-Business-lOl8.pdf 

2 Small Business Views on Retirement Savings Plans, The PEW Charitable Trusts, January 2017 

https://www.pewtrusts.org/~ /medla/assets/2017 /Ql/small-buslness-survev-retirement-savings f.pdf 

'IR-1018·211· 40l(k) contribution limit Increases to $19,000 for 2019; IRA limit increases to $6,000, IRS, 11/1/2018 • 

https:l/www.irs.gov/newsroom/40lk-contribution-llmlt·increases-to-19000-for-2019-ira-limit·increases-to-6000 

U.S. Women's Chamber of Commerce• I 700 12th Street, NW, Suite 700, Washington, D.C. 20005 I (202) 607-2488 

www.uswcc.org 

2 
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I~ U.S. Women :SChamber ..., ~ of Commerce 

on the employer contribution (match) to those plans, which in some cases could be 

50% of the funds set aside for retirement. Additionally, participation in an IRA 

requires a level of self-discipline not found with employer sponsored retirement plans 

(whether Simple IRA's or 401(k)) in that the employee must make the conscious effort 

to 'manually' put funds into an IRA versus the automatic payroll deduction feature of 

an employer sponsored retirement plan). 

Small businesses that do not (or cannot) offer a retirement plan to its 

employees are at a distinct disadvantage when it comes to Talent Acquisition. 

Prospective employees are much more likely to take positions with firms that offer 

retirement plans than those that do not. Consequently, the inability to attract a topnotch workforce stunts the growth opportunities for these small businesses. In an 

August 2017 article published by PeopleKeep, the author noted that 'due to the cost 

and complexity of traditional group benefits, many small businesses choose to forgo 

these offerings and instead raise employees' wages. While wage increases can be 

vital in increasing employee satisfaction- and thereby recruiting and retention rates 

-they cannot make up for the value businesses lose by not offering formal benefits'4

• 

With respect to retirement benefits, the article stated that 'retirement benefits, such 

as a 401(k) or defined benefits plan, are growing increasingly important in recruiting 

employees. The number of workers for whom retirement programs is an important 

benefit is near 70 percent:> 

4 Which Benefits Have the Best Effect on Employee Retention and Recruiting?, PeopleKeep, 8/8/2017-

https:Uwww.peoplekeep.com/blog/which-benefits-have-the-best-effect-on-employee-retention-and-recruiting 

'Ibid. 

U.S. Women's Chamber of Commerce• I 700 12th Street, NW, Suite 700, Washington, D.C. 20005 1 (202) 607-2488 

www.uswcc.org 

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l.wf U.S. WomensChamber ~~ ojCmnmerce 

Employees of small businesses that do not offer a retirement plan are at 

greater risk of relying on government-sponsored programs in their golden age, as 

they may not have adequately provided for their own retirement. 

My employer, Citizant, Inc, was founded in 1999 and for the first three years of 

operation it was unable to offer any form of retirement plan for its employees due to 

the administrative burden of establishing and managing a plan. In 2003, when the 

company had roughly $4M in revenue and 50 employees, it was finally able to offer a 

401(k) plan with a matching contribution. 

For small businesses that have established retirement plans, the number one 

challenge is increasing employee participation in the plan. The most often cited 

reason at my company for employees not participating in the Company sponsored 

401(k) plan is financial, that is they cannot absorb the reduction in household cash 

flow. Many of these employees are forced to prioritize the need for health insurance 

over retirement savings. This is especially true at the lower income levels (and due to 

the complex rules of 401(k) plans, the non-participation of lower income employees 

negatively impacts the amounts higher income employees are allowed to contribute 

to the plan). However, recently we have noticed a trend amongst more highly 

compensated employees in their 20's and 30's. Faced with large student loan debt 

repayments, this latter group of employees struggle to make ends meet each month 

and cannot service their debt and save for retirement at the same time. And since 

employer contributions to a 401(k) are tied to the amounts deferred by the 

employee, they miss out on any contributions the employer might be willing to make. 

U.S. Women's Chamber of Commerce• I 700 12th Street, NW, Suite 700, Washington, D.C. 20005 I (202) 607·2488 

www.uswcc.org 

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I~ U.S. Women s Chamber "1~ ofCommerce 

In a Private Letter Ruling (Number 201833012) issued in August 20186

, the 

Internal Revenue Services granted a Taxpayer permission to modify its 401(k) plan to 

allow the Taxpayer to make 'an employer nonelective contribution on behalf of an 

employee conditioned on that employee making student loan prepayments. Under 

this ruling, employees can receive contributions to the retirement account, just as if 

they were making voluntary salary deferrals under their company's 401(k) plan. This 

is a benefit that should be provided to all employees, of all companies, small and 

large. 

Other recommendations mentioned by business members of the U.S. Women's 

Chamber of Commerce in a recent survey to incentivize and assist small businesses to 

offer retirement benefits include: 

• Allow multiple small businesses to more easily and affordably pool their 

resources to form and administrate shared multi-employer 401(k) plans 

which could be managed by experienced 401(k) plan providers. 

• Create greater tax credits for employer matching and incentives for small 

businesses to mitigate the costs of setting up and administering 

retirement plans including increased tax credits for fees paid by 

employers for third-party administrators. 

• Simplify the requirements along with the administrative and legal 

reporting burdens for plans offered by small businesses. 

• Reduce the need for third-party administrators altogether. 

'PLR-131066·17,1RS, 5/22/18- https://www.irs.gov/pub/irs-wd/201833012.pdf 

U.S. Women's Chamber of Commerce• 1 700 12th Street, NW, Suite 700, Washington, D.C. 20005 f (202) 607-2488 

www.uswcc.org 

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U.S. Women s Cht~mber 

of Commerce 

• Allow self-directed investment management through vehicles like 

Exchange-Traded Funds and generally promote investment vehicles that 

do not contain additional layers of fees which reduce the retirement 

savings benefit. 

• lncentivize employee savings and use of retirement plans by providing an 

easy, flexible, low cost, low fee small business sponsored investment 

plan. 

Thank you for your support of American small businesses. I encourage you to 

help and incentivize small business owners to provide strong, affordable retirement 

benefits for small business owners and their employees. 

U.S. Women's Chamber of Commerce• I 700 12th Street, NW, Suite 700, Washington, D.C. 20005 I (202) 607-2488 

www.uswcc.org 

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National Association 

tor th01- 5<~-lf-Employecl 

Statement of Mr. Keith Hall 

President & Chief Executive Officer 

National Association for the Self-Employed 

"Unlocking Small Business Retirement Security" 

U.S. House of Representatives 

Small Business Committee 

Full Committee 

March 27, 2019 

wwwNASLorg 
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Chairman Velazquez, Ranking Member Chabot, and members of the House Small Business 

Committee, thank you for the opportunity to be here today as an invited guest of the committee 

to discuss the incredibly important topic of retirement security. As president and chief executive 

officer of the National Association for the Self-Employed (NASE), our nation's leading advocate 

and resources for America's 27 million selt~employed and micro-businesses, I'm here 

representing our members located in every state throughout the country. For over 30 years, 

NASE has offered our small business-members a broad range of benefits to help these 

entrepreneurs achieve success and to drive the continued growth of this vital segment of the 

American economy. We continue to support, encourage and help motivate millions of 

Americans who have chosen the self-employment and micro-business ownership path. 

As we delve into the topic of retirement security, I think we can all agree that the lack of 

retirement savings is a looming crisis for American families, including those family-owned small 

businesses. In fact, last year, the Trump Administration through executive order, challenged the 

Departments of Labor and Treasury to identify ways in which retirement savings could be 

streamlined and expanded, specifically for small businesses. We are supportive of these efforts 

and will continue to lend our voice as to how our country can best develop and implement 

policies promoting retirement savings. 

However, I do want to caution that the path to retirement security is fraught with landmines. 

Research shows one of the biggest challenges to retirement savings is debt. Recent data from the 

AARP found that "the average household has on~v $3,000 saved for retirement. In fact. 18% ol 

retirees in the next 15 years will retire with more debt than savings." This is a staggering statistic 

-and is the foundation for our conversation today as to how we can best help provide the tools 

and resources for the 27 million self-employed and micro-business owners to elevate retirement 

security as a business issue. 

As with any challenge or looming crisis, we have an opportunity to work collaboratively to put 

forth and champion policies and programs that are flexible, comprehensive, and most 

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importantly, innovative to meet the changing dynamics of how Americans are working in the 

21 st century. 

To start, there are options for the selt:.employed and micro-business community, to either 

directly offer retirement savings plans or facilitate information to their employees as to the 

available programs. Those programs include: Traditional and Roth IRA, solo 40 l(k), simplified 

pension plan (SEP) IRA, Simple IRA, and a defined benefit plan. So, while there arc options, we 

also know that there remain two main impediments for self-employed and micro-business 

owners to access those options: education and time. These challenges were confirmed by recent 

Pew Charitable Trust survey data finding that out of the 1,600 small and medium size business 

owners surveyed, 71 percent stated that setting up a retirement account was too costly, and 63 

percent said they didn't have the resources to set up a plan. 

To be frank, the structure in which the majority of Americans save for retirement is completely 

skewed towards a traditional work arrangement in the form of employee-sponsored defined 

contribution plans, primarily 40l(k) plans. While those type of arrangements cover 60 percent of 

the population, according to recent Pew Charitable Trust data, 40 percent of full-time employees 

do not have access to a retirement plan. 1 The reason this is an important fact to highlight is 

because the data shows that when employees have access to save for retirement via their 

paycheck, they are "15 times more likely to save for retirement . .. But yet, as we move towards a 

more dynamic, fluid work arrangements, many Americans, including the self-employed, don't or 

won't receive a paycheck. Instead, many of our members see their "pay" fluctuate based on their 

business activities. Even in some cases, our members have to make hard choices from month-tomonth as to what they can pay themselves in order to ensure their business remain solvent and in 

'The Pew Charitable Trusts. Who's In. Who's Out: A Look at Access to Employer-Based Retirement Plans and 

Participation in the States (January 2016), I, 

http://www .pewtrusts.orgl-/medialassets/20 1610 1/retirement_savings_reportjan 16.pdf. See also U.S. Government 

Accountability Office, Retirement Security: Federal Action Could Help State Efforts to Expand Private Sector 

Coverage (September 2015), 15, http:llwww.gao.govlassets/6801672419.pdf; U.S. Bureau of Labor Statistics. 

"National Compensation Survey: Employee Benefits in the United States, March 2015" (September 2015), 

http:llwww.bls.govlncslebslbcnefits/2015. In 2015, the private sector employee take-up rates, which measure 

participation for those who have access to a plan. for defined benefit and defined contribution plans were 84 and 71 

percent. respectively. 
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the extreme case in which they have employees or utilize consultants, they pay them first before 

paying themselves. I fear that retirement savings programs that require a paycheck, pay system 

or mandatory, consistent contribution to an account, will never work for the self~employed. 

So, what can we do to provide new, innovative opportunities for retirement savings for our 

changing workforce? 

First, I am intrigued as to how some states have intervened and developed new programs that 

facilitate savings. While those programs conllict with the statement I just made about mandatory 

contributions and requiring a paycheck, I do believe that these programs provide a ground swell 

of education and awareness on the importance of retirement savings. 

Second, Congress should work collaboratively with the Administration and applicable agencies 

to provide the legislative and regulatory environment for multi-employer pension plans as 

outlined in the August 2018 executive order. I know there are several legislative proposals 

pending, but working quickly to codify MEPs would provide yet another tool that small business 

owners could utilize in ensuring security in retirement. 

Third, we at the NASE have a mantra we like to adhere by: simplify, simplify, simplify. What 

can we do to simplify the types of retirement accounts that are most flexible and utilized by the 

self-employed? Simplification was a key tenet of the Trump Administration's executive order 

last summer and we couldn't agree more. Small business owners are literally buried with 

paperwork and so all efforts to simplify this process are strongly supported by the NASE. 

And fourth, how do we better communicate to new business owners the importance of planning 

for retirement? In that sense, how can we better partner with the Small Business Administration, 

business development centers, credit unions, and other lending institutions as to the importance 

of stressing to businesses the need to include retirement savings as a part of any business plan. 

4 
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These are just a few overall, top line thoughts as we dig into the issue, but please note that the 

NASE stands willing and able to collaborate and support any efforts to make things easier and 

more efficient for the 27 million self-employed Americans to have the confidence that they will 

be able to enjoy a secure retirement. 

I thank the Committee for its time today and welcome the opportunity to answer any questions. 

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Hearing Questions 

Congressman Troy Balderson 

Question for full panel 

1) When I speak to small business owners in my district, they 

always say their top challenge is hiring and retaining 

qualified workers. We've heard that problem echoed again 

and again in this committee room from many small 

business owners when they come to testifY. 

This question is for everyone on the panel, because I want 

to hear each witness's unique perspective on this topic. Is it 

safe to say that a small business's inability to offer its 

employees a retirement plan is hurting that small business 

when it must compete with large corporations for qualified 

workers? 

Follow-up: As Ranking Member of the Innovation and 

Workforce Development Subcommittee, this is a problem 

that really worries me. I think the President's Executive 

Order to set up MEPs is a good first step, but what more 

can we do to encourage more workers to take jobs with 

small businesses? 
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Martella Turner-Joseph answer 

Prospective workers do examine the retirement benefits of 

various employers when weighing the decision about where 

to work. So if large corporations have better benefits, 

including a robust retirement plan, compared to a smaller 

employer, the large employer would have a competitive 

edge in attracting talent. 

As you know, there is current bipartisan legislation pending 

in Congress that would considerably juice up the small 

employer pension plan startup credit to reduce the burden 

on the small employer to offer a retirement benefit to attract 

and retain top talent. I strongly support these tax credit 

increases. 

In addition, the American Retirement Association supports 

restructuring these tax credits so that they are delivered 

through the payroll tax system. Many small businesses do 

not have any income tax liability - especially in the early 

years of the business- so delivering the incentive to adopt 

a retirement plan in the form of a quarterly payroll tax 

credit would be more timely and effective. 
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Hearing Questions 

Congressman Troy Balderson 

Question for full panel 

1) When I speak to small business owners in my district, they 

always say their top challenge is hiring and retaining 

qualified workers. We've heard that problem echoed again 

and again in this committee room from many small 

business owners when they come to testify. 

This question is for everyone on the panel, because I want 

to hear each witness's unique perspective on this topic. Is it 

safe to say that a small business's inability to offer its 

employees a retirement plan is hurting that small business 

when it must compete with large corporations for qualified 

workers? Absolutely yes. And it's not just large 

businesses, but other smaller business that can offer a 

40 I (k). The key question is what type of workforce does 

the small business want/need. lfthe business model is to 

hire lots of young, relatively inexperienced resources with 

a lot ofturnover, retirement planning will never be an 

issue. However, if the business model is to attract 

experience resources that will stav and help grow, then 

those resources will choose firms that can help them plan 

for retirement everytime. 

Follow-up: As Ranking Member of the Innovation and 

Workforce Development Subcommittee, this is a problem 

that really worries me. I think the President's Executive 
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Order to set up MEPs is a good first step, but what more 

can we do to encourage more workers to take jobs with 

small businesses? 

Frankly, I do not think encouraging worker to take job with 

small business should be the role of government. These are 

personal decisions are based on opportunities presented, 

not all of which are _financial. Personal growth, 

opportunities to do more with less, ability to be a 'big fish 

in a little pond', wanting to be something other than a 

number. None of these motivators are financial and none 

can be incented by government. Thev are personal drivers. 
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Question for full panel 

Hearing Questions 

Congressman Troy Balderson 

1) When I speak to small business owners in my district, they always say their top challenge is 

hiring and retaining qualified workers. We've heard that problem echoed again and again in this 

committee room from many small business owners when they come to testify. 

This question is for everyone on the panel, because I want to hear each witness's unique 

perspective on this topic. Is it safe to say that a small business's inability to offer its employees a 

retirement plan is hurting that small business when it must compete with large corporations for 

qualified workers? 

Follow-up: As Ranking Member of the Innovation and Workforce Development Subcommittee, 

this is a problem that really worries me. I think the President's Executive Order to set up MEPs is 

a good first step, but what more can we do to encourage more workers to take jobs with small 

businesses? 

NASE Response from President & CEO, Keith Hall: 

Retirement security is a looming crisis for American families, including family owned small businesses. A 

combination of mounting debt and break-even bottom lines has created an environment where saving 

for retirement too often takes a backseat in operating budgets of many Americans, including the small 

business community. To help make retirement savings a priority, we continue to support ways that both 

streamline and expand retirement savings opportunities for Americans at every income level and 

employment structure." 

The Trump Administration's 2018 £!<_.::_cutive order opened multiple employer plans (MEPs) to small 

businesses and "expand(ed) access to workplace retirement savings plans for American workers." The 

executive order would no longer require small businesses to have formal business ties and instead 

would allow small, independent employers to join together through MEPs to offer workers access to 

401k retirement savings plans. While last year's executive order was a good start, there is no one, right 

way to save in America. We support all paths that make it easier for Americans, including small business 

owners, to save for retirement. The major challenge for retirement savings is simply encouraging 

Americans to start saving. Every effort making starting a retirement savings account simpler, 

incentivized and accessible, regardless of employment structure, is a positive step in the right direction. 
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There are now many options and vehicles available to Americans who operate in various employment 

structures and income levels allowing them to save. With a changing workforce, the key to retirement 

savings is offering different options, more flexibility and innovative plans for millions of Americansincluding the small business community. We must continue to make it easier to save by removing 

barriers and reducing operating costs and requirements while incentivizing opportunities to save for 

retirement." 
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ffACLI 

Financial Security .. for Life. 

Statement for the Record 

Submitted to the 

U.S. House Small Business Committee 

"Unlocking Small Business Retirement Security" 

March 27, 2019 

On Behalf of 

Susan K. Neely 

President and CEO 

The American Council of Life Insurers 
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The American Council of Life Insurers (ACLI) is pleased to submit this statement for the record on 

"Unlocking Small Business Retirement Security." The ACLI thanks Chairwoman Nydia M. Velazquez 

(D-NY) and Ranking Member Steve Chabot (R-OH) for holding this important hearing. This statement 

will highlight the successes of the current retirement system, specific challenges that small 

businesses face and public policy proposals that would enhance and build upon the successes of 

the retirement system. 

THE AMERICAN COUNCIL OF LIFE INSURERS 

The American Council of Life Insurers (ACLI) advocates on behalf of 280 member companies 

dedicated to providing products and services that promote consumers' financial and retirement 

security. Financial security is our core business, and retirement security for all Americans is a critical 

mission. We protect more than 90 million American families with financial products that reduce risk 

and increase financial security, including life insurance, annuities, retirement plans, long-term care 

insurance, disability income insurance, reinsurance, dental and vision and other supplemental 

benefits. As society and work changes, we are committed to solutions that protect all Americans, 

regardless of where and how they work, their stage in life, or the economic status of their household. 

Americans are living longer, and financial security into retirement is a big challenge facing our 

country. We help people retire with security, with more products, availability, accessibility, and 

affordability for all. 

ACLI members represent 95 percent of industry assets in the United States. Accordingly, ACLI 

member companies offer insurance contracts and investment products and services to employmentbased retirement plans (including defined benefit pension plans, 401(k), SIMPLE, SEP, 403(b), and 

457(b) plans) and to individuals (through individual retirement accounts (IRAs) and annuities). ACLI 

members are also employer sponsors of retirement plans for their employees. As service and 

product providers, as well as employer plan sponsors, life insurers believe that adequately and 

consistently saving for retirement, effectively managing assets throughout retirement and utilizing 

appropriate financial protection products are all critical to Americans' retirement and financial 

security. 

In 2017, American families received $364 billion in payments from annuities, $126 billion in 

payments from life insurance, $19 billion in disability income insurance benefits and $11 billion in 

long-term care insurance benefits. Our nation is grappling with some big challenges, and the 

insurance industry is a vitally important part of how Americans are able to plan, save and guarantee 

themselves a secure retirement. Small-employers (99 or fewer employees) overwhelmingly rely on 

life insurers for products and services. Three-fifths of their employees rely on life insurer products 

and services in their employment-based retirement plan. 

THE RETIREMENT SYSTEM IN AMERICA 

The retirement system for private-sector workers in America works in concert with contributions 

made to Social Security and is enhanced by employment-based retirement plans, IRAs, individual 

annuities, and other investments. These private-sector efforts play a vital role in retirement security 

for millions of Americans. Current tax incentives (for pensions and retirement savings) encourage 

employers to provide and maintain employment-based plans and have encouraged and enabled 

millions of American families to accumulate savings, thereby improving their retirement security. 

According to the Bureau of Labor Statistics, more than 80 percent of full-time civilian workers have 

access to a retirement plan through their employer, and of these workers, 80 percent participate in a 

workplace plan. Yet, more can be done to ensure that everyone who can afford to save for retirement 

is saving for retirement. 

2 
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While the current combination of Social Security and employment-based and private retirement 

arrangements has successfully demonstrated the ability of workers to attain retirement security, 

several legislative enhancements, including those with a focus on financial literacy, can build upon 

this success. ACLI supports the committee's commitment to improving retirement savings for all 

Americans. 

CHALLENGES FACING RETIREMENT SAVERS 

While employer-provided retirement plans provide a critical retirement security safety net to workers, 

impediments still exist that prevent more widespread employee access and participation. For some 

savers, understanding the value of saving for retirement and the underlying concepts can prove to 

be daunting. Some of the mystery derives from the shift over time from defined benefit plans to 

defined contribution (DC) retirement plans. These plans, while providing choice and flexibility for 

participants, also require acumen to grasp various savings and investment options, a strong 

understanding of personal goals for the future and the foresight to know how much savings are 

needed in retirement. 

Numerous segments of the population seem to have greater barriers to savings. While 81 percent of 

full-time workers have access to a retirement plan in the workplace, only 40 percent of part-time 

workers enjoy access to an employer sponsored plan. , in particular people who work for small 

employers and gig economy workers.' According to Betterment's study, Gig Economy and the Future 

of Retirement, nearly 40 percent of respondents feel unprepared to save enough to maintain their 

lifestyle during retiremenV 

While access is high for workers at larger employers, roughly 4 7 percent of all workers employed by 

businesses with fewer than 50 workers have access to a DC workplace retirement plan.3 Many small 

businesses do not offer a retirement savings plan, but not for a lack of access to a marketplace of 

product offerings. The uncertainty of revenue is the leading reason given by small businesses for not 

offering a plan, while cost, regulatory and administrative burdens and lack of employee demand are 

other impediments. According to the Bureau of Labor Statistic's March 2018 report, in the private 

sector, access numbers are lowest for workers at small businesses with less than 100 workers, and 

for those with average wages in the bottom quartile ($12. 75/per hour private industry). This 

"access gap" has been consistent for some time despite the tax incentives offered to employers and 

the life insurance industry's commitment to expand retirement savings. 

POTENTIAL SOLUTIONS TO ADDRESS CHALLENGES IN SAVING FOR RETIREMENT 

Effective public policy proposals, in addition to action by plan sponsors and providers, can address 

the challenges discussed above and help Americans save for a secure retirement. Public policy 

should seek to increase access to essential financial protections, retirement savings and guaranteed 

retirement income products. While numerous pieces of legislation introduced in the 115th and the 

116th Congresses have sought to accomplish these objectives, perhaps the most well-known has 

been the Retirement Enhancement and Savings Act (RESA) (H.R. 1007/S.972)4• RESA demonstrated 

National Compensation Survey. !Jilllli;Lt:ti'!YYLJ~IillXLlliOSL 

introduced in the 116th Congress by Representatives Kind (D- WI) Mike Kelly (R-PA); :'L2L2. 

in the 116th Congress by Senators Chuck Grassley (R-IA) and Ron Wyden (D·OR). 

3 
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that sound retirement policy that is supported in a bipartisan, bicameral way is possible and resulted 

in the bipartisan House product, the Setting Every Community Up for Retirement (SECURE) Act, 

recently reported out of the House Ways and Means Committee. As the 116'" Congress considers a 

path forward for the SECURE Act, it is imperative that they enact the SECURE Act as soon as 

possible. 

Furthermore, ACLI supports policy proposals that seek to increase retirement savings, specifically 

among small businesses. These include (many are included in the SECURE Act): 

1. Increased Access and Participation Through Small Plan Coverage 

A sizable majority of full-time workers have access to a retirement plan in the workplace. Still, more 

could be done to expand access and coverage. Proposed legislation in the 116'" Congress seeks to 

remedy this access challenge by facilitating retirement plan creation among small employers.5 The 

expansion of private-sector sponsored multiple employer plans, also known as "open MEPs" or 

"pooled employer plans," can encourage and facilitate adoption by employers that are not prepared 

to sponsor their own stand-alone retirement plan. Open MEPs can be an important tool in reducing 

the costs and administrative burdens to small employers. Under an open MEP, many businesses can 

join together to achieve economies of scale and advantages with respect to plan administration and 

investment services, making plans much more affordable and effectively managed. This would 

encourage more businesses to offer their employees retirement plans. Additionally, eliminating the 

"one bad apple" rule, which punishes all participating employers if any one of the participating 

employers violates a qualification requirement, is vital. 

While the Department of Labor (DOL) has a current rulemaking proposal relating to "Associate 

Retirement Plans," DOL's proposal falls far short of a real and viable way to expand small employer 

retirement plan coverage. DOL has a unique opportunity to allow for the creation of open MEPs in its 

current rulemaking project by removing the imposition of its "commonality" which is unsupported by 

law. DOL's continued and incorrect interpretation of the law serves as an impediment to expanding 

coverage for employees of small employers. 

Undoubtedly, the Open-MEPs model will make a considerable impact upon retirement plan coverage, 

but perhaps the biggest effect could be achieved through an employer requirement approach. Based 

on the BLS data, ACLI estimates that the possible impact of an employer retirement plan 

requirement proposal, similar to House Ways and Means Chairman Richard Neal's Automatic 

Retirement Act of 2017,6 could increase access to an employer-sponsored DC retirement plan by an 

additional 30 million workers, a 38 percent increase in access among private sector workers. 

Assuming comparable take-up rates for those currently with access, the additional increase in 

access would lead to 22 million additional workers participating in a DC retirement plan, a 39 

percent increase over current participation figures. For this reason, ACLI supports this approach, as a 

profound concept that could potentially change the landscape of retirement savings and improve the 

financial wellbeing of millions of Americans. 

Other proposals to improve small business plan access include: 

Increased Start Up Credit: Under current law, small employers (up to 100 employees) that 

adopt a new retirement plan are entitled to an annual tax credit for three years equal to 50 

introduced in the 116'" Congress by Representatives Buchanan (R-FL) and Kind (D-WI); S. 321, introduced in 

by Senators Collins (R-ME) and Hassan (D-NH). 

introduced in the 115'" congress by Representative Richard Neal (D-MA). 

4 
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percent of the costs of starting up the plan, up to a cap on the annual credit of $500. 

Pending legislation seeks to increase the credit and provide an additional credit for 

employers who automatically enroll employees in their plan.? 

Auto-IRA: Employers without a retirement savings plan should be encouraged to 

automatically enroll employees into a payroll deduction IRA. Employers that elect to sponsor 

an "Auto-IRA" should receive the same level of protection and state wage law pre-emption 

provided to employers sponsoring "Auto-401(k)s."s 

• SIMPLE IRA Improvement: SIMPLE IRAs should be made more appealing to small businesses. 

Permitting a higher level of employer contributions and improving rollover rules could make 

the plans more valuable to employees. s 

Automatic Escalation Cap Removal: Under the current nondiscrimination safe harbor for 

automatic enrollment and automatic escalation, a retirement plan may not automatically 

enroll or escalate employees beyond a contribution rate that exceeds 10 percent of pay. The 

10 percent limit has been widely criticized as unnecessarily restrictive and an impediment to 

encouraging plan participants to save more for retirement. Legislative efforts should focus on 

removal of this arbitrary cap.1o 

2. Facilitating Plan Participant Access to Lifetime Income Options 

Many workers do not currently have access to an annuity option within their employer-provided plan. 

An annuity is a financial product only offered by life insurance companies which is guaranteed to pay 

a monthly amount for a certain period or for life. Annuities are the only financial product in the 

marketplace that guarantee income for life. To offer annuities in a 401(k) plan, employers are 

required to make a determination as to whether "an annuity provider is financially able to make all 

future payments under an annuity contract." This standard has been difficult to meet in part because 

it is hard for an employer to know how to draw this conclusion. 

ACLI supports proposals which improve upon the current annuity provider selection safe harbor 

rule.u When considering an insurer's financial capability, employers should be able to rely upon the 

work of state insurance commissioners with specific representations from the insurer regarding the 

plan's status in relation to state insurance regulation and enforcement. Plan sponsors should not 

have to second-guess the determinations of state insurance departments concerning the ability of a 

licensed provider to satisfy its long-term financial obligations. By improving the current safe harbor 

provision, the legislation will mitigate employer concerns regarding selecting an annuity provider and 

encourage them to add an annuity option to their retirement plan offerings. 

In addition to an improved annuity safe harbor regulation, participants would benefit from lifetime 

income portability protections. ACLI supports legislation and regulation that focuses on expanding 

introduced in the 1151h Congress by Representatives Kind Reichert 

in the Congress by Representatives Bishop (R·UT) and Neal 

Senators Collins (R·ME) and Nelson (D·FL). 

s H.fl,_ 4f,i3], the SAVE Act of 2017, introduced in the 115th Congress by Reps. Kind (D·WI) and Reichert (R·WA); 1n 

the 116'" Congress introduced by Senators Collins (R·ME) and Warner (D·VA). 

9 1d. 

1o tLI:t __ 4._6:-s /., introduced in the 115th Congress 

Representatives Kelly (R·PA) and Kind (D·WI); 

Representatives Kind (D·WI) and Reichert (R·WA), H.R. 5282, 

introduced in the 116th Congress by Senators Grassley (R-IA) and 

in the 116th Congress by Representatives Blunt Rochester (D·DE) and Walberg (R·MI); 

the 116'" Congress by Senators Grassley (R·IA) and Wyden (D·OR). 

5 
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the portability rules to maintain participants' access to lifetime income benefits. Participants could 

confidently diversify their portfolio into an annuity vehicle, a key tenant to financial planning. When 

the termination of a plan's annuity contract would lead to the loss of access on the part of plan 

participants to the contract's guaranteed lifetime benefits, the rules should permit the distribution to 

be made via a qualified plan distributed annuity contract or a direct rollover to an IRA or other 

eligible retirement plan. Participants need the means to maintain access to these important 

benefits. Legislation has been introduced that would enhance the portability of guaranteed lifetime 

income products. 12 

3. Additional Plan Innovations 

Employers and plan providers, understanding the value of education in the workplace, have been 

working for decades to design and implement effective financial literacy programs that incentivize 

employees to save for retirement. Employers recognize that financial strain on their employees can 

decrease productivity and increase stress. To combat this challenge, more employers are offering 

financial well ness programs that include investment and savings advice. The Benefits and Beyond: 

Employer Perspectives on Financial Wei/ness, a report from Prudential Financial Inc., found that the 

percentage of employers offering financial well ness programs rose from 20 percent in 2015 to 83 

percent in 2017.13 Additionally, employers offering one-on-one retirement plan investment advice 

rose by 14 percentage points to 55 percent from 2014 to 2017.14 

Potentially, one of the most effective financial literacy legislative proposals being considered by the 

Congress and supported by the ACLI, would seek to improve retirement savings and leverage by 

informing participants of their account balances through a lifetime income disclosure illustration. 1s 

This policy proposals would help individuals think of their retirement plan savings as not only a lump 

sum balance, but also as a source of guaranteed lifetime income. Coupled with their Social Security 

income statement, a lifetime income disclosure illustration on their benefit statement would let 

workers see how much monthly income they could potentially receive in retirement, enabling workers 

the opportunity to increase their savings, adjust their 401(k) investments or reconsider their 

retirement date, if necessary, to assure the quality of life they expect in retirement. Currently, federal 

workers have the benefit of such an illustration in the federal Thrift Savings Plan annual statement. 

Employers have instituted other valuable mechanisms as well that aim to increase plan utilization 

and balances. Tools such as automatic enrollment, automatic escalation and employer matches 

have become invaluable to participants. 73 percent of employers now automatically enroll new 

participants, compared with 68 percent in 2014 and 52 percent in 2009. Additionally, 60 percent 

provide an auto-escalation feature, up from 54 percent in 2014.16 

Creative policy approaches that would assist employees in saving for retirement are also under 

consideration. One approach would enable employers to contribute a "match" to an employee's 

introduced in the 115'" Congress by Representatives Neal (0-MA) and Bishop (R-UT); S~z2;]_(j, Introduced in 

Congress by Senators Hatch (R-UT) and Wyden (0-0R) 

13 Prudential Financial Inc., Benefits and Beyond: Per-so<,ctives on Financial Wei/ness 

in the Congress by Representatives Messer (RIN), Paean (D-WI), Reichert (R-WA), Polis (0-

CO), Kind (O-Wl), Wilson (R-SC), and Norcross (0-NJ); 5~?_(),3, introduced in the 115'" Congress by Senators Isakson (R-GA) 

and Murphy (O-CT) 

16 Willis Towers Watson, 2017 Defined Contribution Plan Survey, hJJl22.iL£.1.\ltlJ~DSJY.?.'!.'!:~U:L£Dm.lu.r_:_\y_;i: 

6 
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401(k) account in the amount that the employee is contributing to their student loans.17 This would 

apply to 403(b) and SIMPLE plans as well. 

Additionally, as technology improves, so do the methods and practices for delivery of information. 

Policy efforts should focus on facilitating the most effective, efficient delivery practices for providing 

employees with information about their retirement benefits by making it easier for employers to 

communicate with employees electronically. Legislative proposals that support electronic delivery 

methods ensure retirement savers will have greater access to needed information and online tools 

to assist them as they save and plan to retire and allow employers to set electronic delivery as their 

default communication method.18 By establishing important consumer protections, such as an 

employee's right to opt-out of electronic delivery at any time and receive paper statements at no 

direct cost and a required annual paper notice that summarizes the various communications 

delivered over the year along with information about how to change the delivery method, participants 

are ensured they will receive plan material by a method of their choosing. 

CONCLUSION 

Every day, 10,000 Americans reach age 65. Encouraging small businesses to implement, maintain, 

and improve their retirement plans so that they can provide American workers with greater access to 

employment-based retirement plans and options, is imperative to closing gaps in access and 

coverage, and ultimately, to ensuring that all Americans are better prepared for retirement. Given the 

challenges small businesses face, there is no better time for lawmakers and the retirement industry 

to engage and develop solutions to ensure that millions of Americans can retire with dignity. Nearly 

all of the public policy proposals discussed in this statement are incorporated in the SECURE Act and 

RESA. These bills utilize innovative products and retirement solutions and stand to improve the 

current retirement system. Congress should not delay in taking action to pass these important bills. 

ACLI and our members stand ready to assist the Congress in this important endeavor. 

17 introduced by Senators Ron Wyden (0-0R) and Ben Cardin (D-MD); introduced by Senators Rob 

Portman (R-OH) and Ben Cardin (D-MD) 

18 J:iR.i!610, introduced tn the 115'" Congress by Representatives Polis (D-CO), Roe (R-TN). Kind (O-Wl) and Kelly (R-PA) 

7 
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U.S. House of Representatives 

Committee on Small Business 

Hearing entitled: 

"Unlocking Small Business Retirement Security" 

Statement for the Record 

of 

Wayne Chopus 

President and CEO, Insured Retirement Institute 

March 27, 2019 

Insured Retirement Institute 
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Chairwoman Velazquez, Ranking Member Chabot, and Members of the Committee on Small Business, my name is Wayne 

Chopus. As the President and CEO of the Insured Retirement Institute (IRI), I am pleased to provide you with our perspective 

on the importance of this Congress securing the passage of bipartisan, common-sense policies to help America's small 

business owners to help employees save for retirement and achieve their retirement goals. I commend you for holding this 

hearing, and I welcome the opportunity to provide this statement for the record to the Committee. 

Summary of Testimony 

Consistent with our consumer-focused mission, my testimony will address two key points: 

1. As the American private-sector retirement system places more responsibility on the individual for ensuring retirement 

security, Americans are facing a looming retirement income crisis. 

2. Legislation, like the public policy measures contained in IRI's 2019 Federal Retirement Security Blueprint, offer 

several policy proposals which can help small business owners expand the opportunities for their employees to save 

through a workplace retirement plan. 

About IRI 

As you may know, for nearly three decades, the Insured Retirement Institute has vigorously promoted consumer confidence 

in the value and viability of insured retirement strategies, bringing together the interests of the industry, financial advisors and 

consumers under one umbrella. Our mission is to: promote better understanding of the insured retirement value proposition; 

modernize standards and practices to improve value delivery; and to advocate before public policymakers on critical issues 

affecting insured retirement strategies and the consumers that rely on their guarantees. 

IRI is the only national trade association that represents the entire supply chain for the insured retirement strategies industry. 

Our member companies include major life insurance companies like, Prudential, AXA, MassMutual, Nationwide, and Jackson 

National, broker-dealers like Morgan Stanley, Raymond James and Edward Jones, and asset management companies like T. 

Rowe Price and Blackrock. Our member companies represent more than 95 percent of annuity assets and include the top 10 

distributors ranked by assets under management We offer education, research, and advocacy resources to more than 

150,000 financial advisors affiliated with our member companies. 
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Our members are represented by hundreds of thousands of registered financial advisors across the country, and therefore, 

we bring a perspective from Main Street America to the Congress today. After my many conversations with these financial 

advisors, I have developed a deep level of appreciation for the long-standing relationships they have with their clients and 

friends-ten, twenty, or even forty years. Our financial advisors consider that relationship to be a sacred trust and as such, 

they are intensely committed to helping their clients reach their retirement income objectives, which involves a series of the 

most significant financial decisions a person ever makes over a very long lifetime. 

America's Looming Retirement Income Crisis 

Americans today are at risk of outliving their assets due to a confluence of several factors chiefly the shift from defined 

benefit to defined contribution plans and increased longevity. These challenges put significant retirement savings and income 

burdens on the shoulders of individual consumers, particularly middle-income Americans, as well as strain both the public and 

private retirement systems. 

As sixty-six million Baby Boomers move into retirement at the rate of 10,000 a day unti12030, they will face immediate and 

unprecedented income challenges which did not exist for previous generations. According to IRI's Boomer Expectations for 

Retirement 2018 annual report, 55 percent of Boomers do not expect to receive a pension from a private employer. In 1985, 

over 114,000 private-sector defined benefit plans were in place.' By 2018, only 25,000 remain and only 18 percent of workers 

had access to a defined benefit plan.' With the remaining public-sector defined benefit plans increasingly being frozen or 

terminated, virtually all the options to replace the loss of defined benefit plans require defined contributions from the individual. 

However, with today's historically low personal savings rates, including 42 percent of Baby Boomers who report having nothing 

saved for retirement, along with insufficient opportunities to access a workplace defined contribution plan to save, many 

retirees will be forced to consider alternative sources to provide retirement income.J 

1 Pension Benefit Guaranty Corporation. Trends in Defined Benefit Pension Plans 

2 Pension Benefit Guaranty Corporation. Annual Report 2018. 

3 IRI's Boomer Expectations for Retirement 2018 

3 
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In addition, the shift away from the defined benefit pension has increased the risk of retirees outliving their savings. According 

to the Society of Actuaries Mortality Tables, for a couple age 65 there is an 89 percent chance one will reach age 90 and in 

nearty one-half of couples one person will survive to at least age 95. This has made the individual also responsible for ensuring 

their savings last through retirements that can span 20 to 30 years or more. Therefore, it is was not surprising when IRI 

research revealed that only 25 percent of the Baby Boomer generation believes it will have enough money to last throughout 

retirement' These trends have placed nearty 30 million Americans at immediate risk. 

The Baby Boomers are not, however, the only generation to be impacted by shifting opportunities and longer lifespans. Forty 

percent of Generation Xers have no retirement savings, a decrease from the forty-five percent with retirement savings in 2016. 

And while they have a decade before the eldest of the group reaches traditional retirement age, only one-third have tried to 

calculate how much they will need to save in order to retire.5 While Generation X is optimistic- 67 percent are satisfied with 

their financial situation --they cite changes to Social Security benefits and health care expenses as their top concerns and 30 

percent of the generation anticipates having to work past traditional retirement age and a quarter do not know if they will.' 

These findings underscore the critical importance of ensuring that the regulatory framework governing insured retirement 

strategies supports an environment which provides consumers access to products that can meet their need to protect against 

longevity risk, as well as one that extends access to tax-deferred retirement savings. The findings also emphasize the critical 

need for Congress to act to advance both common sense retirement security policies and initiatives to promote consumer 

education and choice. 

Bipartisan, Common-Sense Solutions 

The Insured Retirement Institute has long supported the principles of protecting the tax-deferred status for retirement savings, 

expanding opportunities for more Americans to access workplace retirement savings plans and enhancing the auto-enrollment 

4 /bid 

5 1RI's Generation X and Retirement Readiness- They're {Mostly) Doing it Wrong 

6 /bid 

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and auto-escalation features of retirement plans. As such, IRI has identified public policy proposals to address the looming 

retirement crisis facing a growing number of Americans who are not sufficiently saving for retirement. 

Below we are respectfully submitting for your consideration several of the policy proposals contained in the IRI Retirement 

Security Blueprint that we ask the House Committee on Small Business to consider as it examines the options for small 

employers, the benefits and barriers they face in offering plans, and options for expanding coverage during the hearing being 

held today. 

The proposals described below include ones which would expand opportunities to save for retirement by enhancing access 

and features of workplace retirement plans; extend greater access to lifetime income products in workplace retirement plans; 

help savers make decisions about their finances by improving and modernizing access to information; and maintain and 

enhance the current tax treatment for retirement savings. 

Expand Opportunities to Save for Retirement 

Require Employers to Offer Retirement Plans for Worl\ers 

Most Americans are not saving enough for retirement because they do not have access to employment-based retirement 

savings plans. In fact, recent research has shown only 40 percent of full-time workers at small and medium-sized businesses 

have access to one of the many types of employment-based retirement plans. To expand access for more Americans to have 

an opportunity to increase their savings for retirement, Congress should enact legislation such as the "Automatic Retirement 

Plan Act of 2017'. This bill would generally require all but the smallest employers to maintain a retirement savings plan and 

employees would be automatically enrolled (with the ability to opt out). It would also remove cumbersome legal and regulatory 

barriers which discourage employers from offering this benefit to their employees while preserving employer choice and 

maintaining protections for employers and their employees. 

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Enable All Small Businesses to Use Multiple Employer Plans for The Benefit of Their Workers 

Small businesses face financial and administrative challenges, as well as legal risks, when offering a retirement plan to 

employees. As a result, many do not offer a retirement savings plan for their employees. Allowing small businesses to band 

together to achieve economies of scale and to delegate to a professional plan fiduciary responsibility for sponsoring the plan 

would facilitate their offering a retirement plan and would expand access to a workplace plan for more workers. This can be 

achieved by removing the restrictions on the types of employers that can band together in a Multiple Employer Plan (open 

MEPs), and by protecting employers who participate in a MEP and their employees from any negative consequences caused 

by the acts or omissions of other employers (the "one bad apple rule"). Congress should enact legislation to expand access to 

MEPs, such as the provisions which have been included in the "Retirement Enhancement and Savings Act of 2019", the 

"Retirement, Savings and Other Tax Relief Act of 2018", the "Automatic Retirement Plan Act of 2017', the "Retirement 

Security Act of 2017', "Retirement Security for American Workers Acf', and the "Small Businesses Add Value for 

Employees Act (SAVE} of 2017'. In addition, given that lifetime income strategies greatly reduce the risk of outliving retirement 

savings, these plans should be required to make a lifetime income option available to participating employees. 

Increase the Auto-Enrollment and Auto-Escalation Default Rates 

Studies have shown that automatic enrollment is extremely successful in getting more people to save for retirement with 

participation rates at least 10 percentage points higher in plans with automatic enrollment (77%) than those without it (67%). 

Under current law, employers can automatically enroll employees in 401(k) plans and most private-sector employers set the 

default rate at 3 percent of pay. This is too low for adequate retirement savings. Research by EBRI has found that a 6 percent 

default savings rate would lead to significantly better retirement outcomes for workers without causing a marked increase in 

workers opting out of the plan. Workers across all income brackets are statistically more likely to participate when their 

employers have auto-enrollment but will need higher savings thresholds to reach their retirement savings goals. Congress 

should increase the default deferral rate to 6 percent at the time of automatic enrollment and permit automatic escalation up to 

15 percent This proposal is part of several bills, including the "Retirement Enhancement and Savings Act of 2019", the 

"Retirement Security and Savings Act of2018", the "Retirement Security Act of2017," the "Small Businesses Add Value 

for Employees Act (SAVE} of 2017," the "Automatic Retirement Plan Act of 2017," and the "Retirement Plan Simplification 

and Enhancement Act of 2017." 

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Enhance the Start-Up Credit for Small Employers' Retirement Plans 

Under current law, small employers with up to 100 employees can receive an annual tax credit equal to 50% of the costs of 

starting a retirement plan, up to a maximum of $500 for three years. Unfortunately, this incentive is not having the desired 

impact. According to the Bureau of Labor Statistics, less than half of all workers at companies with fewer than 50 employees 

have access to an employer-sponsored retirement plan. Congress should therefore enact the "Retirement Enhancement and 

Savings Act of 2019", the "Retirement Security and Savings Act of 2018", the "Small Businesses Add Value for 

Employees Act (SAVE) of 2017', the "Automatic Retirement Plan Act of 2017', or similar legislation to make the start-up 

retirement credit available for the first live years and to increase the maximum credit to $5,000. 

Extend Greater Access to Lifetime Income Products 

Clarify Emplover Fiduciary Responsibility for Choosing Lifetime Income Products 

Current regulations do not provide sufficient clarity about the step's employers must take to satisfy their fiduciary responsibilities 

if they want to make lifetime income products available to their employees. Employers should be permitted to give their 

employees access to lifetime income products provided by insurers that meet certain existing regulatory requirements enforced 

by state insurance regulators, such as capital and reserving standards. This can be achieved either through a Department of 

Labor rulemaking or Congressional enactment of legislation such as the "Retirement Enhancement and Savings Act of 

2019", the "Retirement, Savings and Other Tax Relief Act of 2018", the "Increasing Access to a Secure Retirement Acf', 

and the "Small Businesses Add Value for Employees Act (SAVE) of 2017'. 

Enable Annuitv Portability 

Due to a technicality in the tax code, employees who invest in lifetime income options through an employment-based retirement 

plan would lose the guarantees associated with those investments if their employer changes recordkeepers. To avoid this 

result, many employers simply choose not to offer lifetime income options. Congress should enact the "Retirement 

Enhancement and Savings Act of 201g', the "Retirement Security and Savings Act of 2018", or the "Retirement Plan 

Simplification and Enhancement Act of 2017', all of which include provisions to treat a recordkeeping change as a 

distributable event. This simple amendment will ensure workers are not harmed if their employer decides to make such changes. 

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Help Savers Make Decisions About Their Finances 

Require Lifetime Income Estimates on Workers' Benefit Statements 

To save appropriately for retirement, workers should understand how much monthly income their nest egg could generate in 

retirement Research by IRI found that more than 90 percent of workers want retirement income estimates and would find them 

helpful. Additionally, more than 75 percent of workers said they would increase their savings level after seeing these estimates. 

Congress should enact the "Lifetime Income Disclosure Act (LIDA)," which would direct the Department of labor to adopt a 

rule requiring the inclusion of lifetime income estimates on benefit statements. This provision was also included in the 

"Retirement Enhancement and Savings Act of 2019", the "Retirement, Savings and Other Tax Relief Act of 2018", and 

the "Small Businesses Add Value for Employees Act (SAVE) of 2017'. 

Encourage Electronic Disclosure for Retirement Plans 

Encouraging the use of modern electronic communication would have a direct and beneficial impact on workers and 

beneficiaries. Participants of all ages and incomes increasingly prefer to access information online, allowing them to more easily 

act on that information. According to the Progressive Policy Institute, the volume of printed disclosure is intimidating to workers 

and the static nature of printed documents does not invite the interactive engagement consumers need to manage their 

retirement portfolios appropriately. Congress should enact legislation, such as the "Receiving Electronic Statements to 

Improve Retiree Earnings (RETIRE) Act," to permit electronic delivery to be the default option for providing required 

disclosures to plan participants, with an option to receive paper if desired. 

Maintain and Enhance the Current Tax Treatment for Retirement Savings 

Maintain Tax-Deferred Treatment for Retirement Savings 

The "Tax Cuts and Jobs Act' which was enacted into law in 2017, recognized the vital role tax deferred retirement savings 

plays in spurring America's economic growth and prosperity. By maintaining the tax-deferred treatment of retirement savings, 

Congress preserved the tools necessary to help Americans save for their retirement during their working years. Research 

conducted by IRI shows Americans would save less if tax deferral is reduced or eliminated. Congress should continue to 

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promote the use of tax deferral for retirement savings to encourage more Americans to prepare and save for a secure 

retirement 

Protect the Current Structure and Diversitv of Workplace Retirement Plans 

There are several types of workplace defined contribution retirement plans which consider the differences among workers in 

various employment sectors, such as the private, governmental, church, educational, and nonprofit sectors. The most prominent 

are 401(k), 403(b) and 457(b) plans. Proposals to consolidate these types of plans have been discussed during previous efforts 

to reform the tax code for purposes of simplificaflon and consolidation. These proposals were not included in the "Tax Cuts 

and Jobs Acf' and the distinct types and structures of retirement plans which were created to address the needs of distinct 

types of workers were maintained in the tax code. Congress should continue to protect and retain the current structure and 

diversity of workplace retirement plans. 

Provide Favorable Tax Treatment for Guaranteed Lifetime Income in Retirement 

Distributions and withdrawals from guaranteed lifetime income products - like annuities - are currently taxed as ordinary 

income. However, these products provide significant social and economic benefits. By helping older Americans avoid outliving 

their assets, annuities reduce pressure on Social Secur1ty and similar programs. Congress should therefore create tax 

incentives - such as a lower tax rate or an exclusion from taxation - to encourage greater use of guaranteed lifetime income 

products. 

Conclusions 

IRI respectfully submits and strongly urges the Committee to examine comprehensive retirement legislation to modernize 

private-sector retirement savings opportunities and provide options for small employers that will remove the barriers they face 

in offering plans resulting in expanding benefits to cover more workers who are employed by America's small business owners. 

The policy objectives detailed in this statement for the record have all been included in the "Retirement Enhancement and 

Savings Act (RESA) of 2019", legislation which IRI is proud to support. IRI respectfully requests that the members of the 

U.S. House of Representatives Committee on Small Business consider co-sponsoring RESA and seek to advance the 

legislation expeditiously during the 1161

h session of Congress. 

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Thank you for the opportunity to present this statement for the record. It is our hope you will find it useful, and IRI welcomes 

the opportunity to work with the Committee in the future as you consider legislative avenues to help all Americans achieve 

their retirement goals. 

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SMALL BUSINESS ~. COUNCIL "7 OF AMERICA 7 

SMALL BUSINESS COUNCIL OF AMERICA 

STATEMENT FOR THE RECORD 

U.S. HOUSE SMALL BUSINESS COMMITTEE HEARING ON 

"UNLOCKING SMALL BUSINESS RETIREMENT SECl:RITY" 

MARCH 27,2019 

The Small Business Council of America (SBCA) appreciates the opportunity to submit 

this statement. The SBCA is a national nonprofit organization which has represented the 

interests of privately-held and family-owned businesses on federal tax, health care and employee 

benefit matters since 1979. The SBCA, through its members, represents well over 100,000 

enterprises in retail, manufacturing and service industries, virtually all of which provide health 

insurance and retirement plans. 

First and foremost, the SBCA strongly believes that, while there is certainly room for 

improvement, the present qualified retirement phm system has been nry successful in 

providing retirement sccnrii)' for the 011 m'rs am! cmp!oy<•cs of small businesses. 

Unfortunately, most of the data used to measure the success of retirement plans makes it 

hard to get a clear picture of how the small business retirement plan system is performing for 

several reasons. First, traditional analysis fails to distinguish between new and established small 

businesses. Approximately half of all new small businesses fail in their first five years -- before 

most small business owners have even considered sponsoring a qualified retirement plan or other 

employee bcnefits. 1 The inclusion of these infant-stage, and typically smaller, businesses 

depresses the data. Moreover, most analyses ignore the fact that not all employees meet the 

retirement plan eligibility requirements. Part-time employees, employees under age 21 and 

transient employees are generally ineligible to participate in a retirement plan. The statistics cited 

for the low retirement plan coverage, however, most often include the entire workforce and do 

not differentiate between the entire workforce and that percentage of the workforce that is 

actually eligible to participate in a retirement plan based upon cmTent law. When these ineligible 

employees are excluded, the coverage numbers improve significantly. 

A 2015 study,2 which used actual data from employees' W-2 forms, found that 80% of all 

employees who work in companies with I 0 or more employees are offered a retirement plan and 

that of these employees, 65% made 401 (k) contributions3 The predecessor study to the 2015 study 

2 Dushi, lams and Lichtenstein, Social Security Bulletin, Vol. 75 No.2 2. 2015, Retirement Plan Coverage by firm Size: An 

Update. 

3 The size of the company makes a significant difference. W-2 data, which is accurate only to 401 (k) plans and 40 I (k) 

contributions, reflects that 51% of small businesses with more than I 0 employees but less than 25 offer a retirement 

plan. The same data reflects that 63% of small businesses which employ 25 employees but less than 50 offer a 

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SMALL BUSINESS~ COUNCIL 

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which was conducted in 20 II, 4 revealed that, when asked, only 49% of employees who worked 

for companies with 10 or more employees thought they were participating in a retirement plan 

(i.e., making 40l(k) contributions), whereas the W-2 data indicated that 62% of employees were 

actually participating in a plan. This means that 13% of all employees making 40l(k) contributions 

through payroll deduction did not even realize that they were making 40l(k) contributions! 

The foregoing numbers reflect that the small business retirement plan system is successful 

in delivering benefits for small business employees. This sutc{Oss is hu·gcl~ drp<•n<kni on ft•<kral 

taxla\\S. 

A qualified retirement plan, whether small or large, creates significant rights for the plan 

participants and generates significant costs for the sponsoring entity. Funds in a retirement plan 

are not tax sheltered, rather they are tax deferred until the participants receive them, at which time 

they are brought into the participant's gross income. Retirement plan assets are not subject to 

favorable capital gains treatment, nor do they receive a step up in basis at the owner's death. Most 

small business plans are adopted by the small business to provide a tax-advantaged way for the 

owners to save for their and the other key employees· retirement. The rules of retirement plans 

force the owners to make significant contributions for the non-highly compensated employees. 

Thus, in the small business qualified retirement plan world, it is not unusual for the company (in 

addition to contributions made by the employee) to make contributions for its employees in the 3 

- 8.5% of compensation range. Bct':mst.· of the larg£' numbn of cmp!o) ccs who arc actually 

conn:d hy the qualified rctin·nu.>nl plan system an~ changes thllt would motivate employers 

to fn·cze or diminatc the plans could han significant and (ktrimcntal long l!;rm 

rcpcn·ussions. 

• TtL>: lnceutives in the Retirement Plan System are the Primary il{otimtion for Small 

Business Owners to Sponsor Retiremellf Plans and ~~tust be il'faintained 

Despite common misperceptions, as a whole, the tax treatment of retirement plans is not 

particularly attractive since all retirement plan funds are eventually subject to ordinary income. 

Further, retirement plan assets do not receive a step up in basis upon the death of the owner. 

Reducing the tax advantage of sponsoring a retirement plan could very well incentivize small 

business owners to freeze or terminate their plans. The SBCA contends that th<· privaH· small 

and slwuhl continue to rei~· upon tax 

retirement plan. 73% of small businesses which employ 50 employees but less than 100 offer a retirement plan. 87% 

of businesses with more than I 00 employees offer a retirement plan. There is no further breakdown given for over 

100 employees so we do not know how many small to mid-size businesses often defined as up to 500 employees 

offer plans compared to the large businesses. 

4 Dushi, lams and Lichtenstein. Social Security Bulletin, Vol. 71 No.2. 2011, Assessment of Retirement Plan Coverage by Firm 

Size, Using W~2 Tax Records. 

5 While the SBCA believes that the small business retirement plan system should be voluntary, the SBCA is concerned 

that the recent increase of state action in this arena will only further complicate things for employers and would 

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SMALL 6US1NESS ~. COUNCIL 7 OF AMERICA 7 

intcutin:;,, t:ombined with tht· umh,.·standing that one m·cds to st~ve for one's own retirement 

sct·urily, !n fuel tht• system, 

When a small business closes down its retirement plan, the owners are not likely to increase 

the pay of the non-key employees to take into account the loss of the plan contribution. Rather the 

ovmers will take the amount that would have been contributed to the non-key employees as 

additional compensation for themselves, or reinvest it in the company.6 In the early 1980s, a series 

of laws decreased benefits for the key employees and increased contributions for non-key 

employees while increasing administrative burdens. As a result, many small business owners 

determined that the costs of sponsoring a retirement plan outweighed the benefits to be derived for 

the key employees. Accordingly, existing plans were frozen or terminated in droves and new plans 

were not established. The same thing will happen today if the tax incentives are limited or removed 

from the underpinning of the small business qualified retirement plan system. 

Because of this, it is important that all existing ta'i: incentives for retirement plans be 

preserved. This includes, but is not limited to: 

• \laintaining existing nmtrilmtion kvcls 

• Not subjecting 40 I (k) contril:mtions to lHlditional pl'rsonal in com<> laws for 

individuals in higher tax brackets- If the 401(k) contributions of small business owners 

and their key employees are taxed at the time the contributions are made, small business 

owners will be likely to cut back or freeze the 401 (k) feature in a profit sharing plan since 

this is the most burdensome part of the plan. 

!{Naining the ability of indi,iduals to han' any money remaining in an IRA he paid 

in installments oHr their beneficiaries' lifl·timcs, especially for their children - Over 

the last few years, there have been a number of proposals (including, most recently, the 

Senate version of the Retirement Enhancement and Savings Act, discussed further below) 

which would require some or all retirement plan assets to be forced out of an IRA shortly 

after the passing of the employee (and the employee's spouse, if married). The SBCA is 

gravely concerned that the partial or total elimination of the "stretch IRA" (which allows 

the amount remaining in an IRA at an employee's death to be distributed over the life 

expectancy of the beneficiary who inherits it), will cause people to be wary of accumulating 

therefore would support a limited and reasonable federal plan that would supersede state action, such as in the form 

proposed by Chairman Neal (D-MA) in his Automatic IRA Act of2017 (H.R. 3499). 

6 Some economists have claimed that if a small business did not sponsor a retirement plan, the small business owners 

would pay the employees their regular compensation plus the amount that would have gone into the retirement plan 

for them. These claims do not account for the financial decisions faced by small business owners nor the fact that 

many employees themselves do not consider retirement contributions when assessing their compensation. When a 

small business closes its retirement plans, owners are not likely to increase the pay of non-key employees to take into 

account the loss orthe plan contributions< 

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"too much" retirement money because of its ultimate undesirable tax treatment. This may 

cause employees to under save for their retirement and could further give rise to owners 

freezing contributions or closing down the whole plan. We saw the negative impact of the 

15% excise tax on excess retirement accumulations back in the late 1980's when 

accountants determined that a plan was funded at such a level that the 15% excise tax would 

he imposed and told their clients to freeze the plans and stop funding their own retirement 

contributions into the plan. We believe that this will happen again with the partial 

elimination of the stretch IRA, particularly if a dollar threshold is made part of the law. In 

our opinion the only safe way to partially eliminate the stretch IRA without compromising 

the small business retirement system would be to have the stretch end prematurely at 15 or 

20 years so that the behavior of the owners would likely not be changed by the cut off of 

the IRA and forcing it into the income of the children. 

When small business owners are motivated to shut down or freeze their plans, ultimately, 

the real losers will be the small business employees who often enjoy very generous employer 

contributions. The data clearly demonstrates that the most effective way for people to save is 

through payroll deduction. Employees are far more likely to save in a 401(k) plan than in any 

other vehicle, including an IRA. It is therefore counterproductive for the retirement security of 

small business employees to impose new restrictions or taxes on the business owners and other 

key employees at a possible cost of eliminating the most effective method for all of the employees 

to save. 

• Changes Should he Undertaliell with Care ami Consideration 

Both the House (H.R. 5282) and Senate (S. 2526) versions ofthe Retirement Enhancement 

and Savings Act ("RESA"), introduced in the 115'h Congress include a number of provisions that 

would assist in ensuring the continued viability of the small business retirement plan system. 

Unfortunately, the SBCA cannot endorse the current Senate version of RESA due to its partial 

elimination of the stretch IRA (discussed above), which the SBCA believes is inadvisable and 

would have a detrimental impact on small business plan sponsorship and its increase in the 

penalties for the failure to tile a Form 5500 or other notices. The SBCA finds it strange that two 

of the significant revenue raisers to pay for this new provision which is intended to help small 

businesses sponsor retirement plans in a more cost effective way (see below on multiple employer 

plans or MEPs) are aimed squarely at small businesses. It is the small business that will fail to file 

its Form 5500 or do so late and thus, will face new substantially increased penalties. Similarly, it 

is primarily small business owners who will have accumulated enough funds in their retirement 

plans (and often rolled over to IRAs upon retirement) who will feel the brunt of the partial 

elimination of the stretch IRA. This is because small business owners rely on the contributions 

they make to the qualified retirement plan as the primary source of their retirement security 

(because many small businesses cannot be sold). Generally, their counterparts in the larger 

business context rely upon non-qualified deferred compensation plans for their retirement security. 

The SBCA, though hopeful, does have reservations about the extent to which all of the 

various proposals on multiple employer plans (MEPs) will have a significant impact on the 

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COUNCIL ~ SMALL BUSINESS,~~ 

OF AMERICA, 

availability of retirement plans for small business employees and the cost associated with such 

changes. 

Under both versions ofRESA, MEPS would become "open" meaning that the requirement 

that there be some nexus amongst the companies that adopt the MEP would be eliminated. Also, 

each separate plan would rise or fall on its own merits -no longer would one "bad" plan taint the 

whole group with the possibility that all the plans in the MEP could be disqualified because of the 

one bad apple (plan). Today, most plan advisors counsel their clients to stay away from MEPS 

because of these problems. Many members of Congress seem to believe that opening up MEPS 

will solve the problem of lagging coverage in the small plan area. The theory is that MEPS will 

reduce admin costs, costs of investments and remove almost all (or in at least one version 

virtually all) fiduciary responsibility for the company joining the MEP. Even though all of this 

sounds good in theory, given the fact that the introduction of SEPs and SIMPLE IRAs didn't crack 

the nut, it is not clear why MEPS would. Of course, problems like start-ups simply not having the 

money or the bandwidth to provide a plan, or small businesses just hoping to make payroll, or the 

fact that a significant percentage of new businesses don't make it through their first few years of 

existence are ignored as the real reasons why many small businesses do not sponsor retirement 

plans. Nevertheless, they may work and for that reason the SBCA does support the necessary 

improvements to the MEP rules. However, the SBCA cannot accept that small business owners 

(and in some cases their families) that are sponsoring retirement plans or have successfully saved 

in them while providing retirement security for their employees are being asked to pay for these 

improvements in the law. 

To the extent that Congress is going to try for large scale retirement law changes, the SBCA 

contends that the paygo rules should not be applicable to retirement plan legislation inasmuch as 

the short budget window distorts the actual revenue loss and the need to make sure that retirement 

savings is encouraged should trump any short term revenue loss (which is later made up outside 

the normal budget window). 

• The Laws Governing Retirement Plans Can be Simpl[fied 

While the small business retirement plan system has been largely a success, there is still 

much room for simplification with the goal of reducing or eliminating complexities that are 

unnecessary or that result in burdens that outweigh the desired policy objectives. Often when a 

number of relatively minor changes that assist in the sponsorship of a retirement plan are put 

together, they have a real impact on simplifying the whole system. This is often best achieved by 

providing plan administrators with the opportunity to take advantage of optional simplification 

such as the 40l(k) safe harbor provisions. This allows companies to weigh the advantage of 

reducing complexity with the costs of possible plan amendments, required contributions, redoing 

employee communications and software and educating plan pmticipants, if necessary. 

The SBCA believes that the following proposals would encourage small and mid-size 

employers (and assist larger plans as well) to establish qualified plans by simplifying the rules and 

reducing unnecessary administrative burdens: 

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COUNCIL ~ SMALL BUSINESS•~ 

OF' AMERICA, 

Uiminate Top-flnn:r Rufcsji1r Defined Contribution l'ltm.> 

When first enacted, the top-heavy rules imposed additional minimum contributions and 

accelerated vesting on small and mid-size retirement plans, which were virtually always 

top-heavy due to the mathematical tests used to determine such status. Over the years, the 

rules have changed so significantly that the top-heavy rules are now an archaic appendage 

similar to that of the appendix in the human body they do nothing but cause problems. 

Nevertheless, those who are not immersed in the technicalities of retirement plan law insist 

that the top-heavy rules still operate so as to benefit non-highly compensated employees. 

This outdated view has resulted in inertia on the Hill when it comes to repealing these 

unnecessary and complicated rules. Because this situation has existed for at least ten years, 

the following proposals would at least work to ameliorate the most negative aspects of the 

top-heavy rules. However, these ideas would not accomplish the goal nearly as effectively 

as outright repeal of the obsolete and complicated top-heavy rules for defined contribution 

plans. Both the House (H.R. 5282) and Senate (S. 2526) versions of the Retirement 

Enhancement and Savings Act, introduced in the 11511' Congress, called for the 

elimination of tlte top-heavy rules. 

Fliminate Top-llem:r Cuutrihurion>Jor Plan Participants with Less Than One Year i!{ 

Serl'ice so that Employees ilre Alto wed to Make 4fll (k) Contribution\· during Their Fint 

Year 

Because of the top-heavy rules, small and mid-size plans that are top-heavy cannot allow 

recent employees into the 40l(k) portion of their profit sharing plan without these 

employees receiving an employer contribution even though they have not met the 

requirements for the regular "profit sharing contribution." Thus, even though from a policy 

perspective we should want to encourage new hires to start saving for their retirement as 

soon as possible, the top-heavy rules impede this. Enactment of the change above will 

result in more participation in the 401 (k) plan sooner rather than requiring employees to be 

at the company for a year before being able to enter the 401 (k) portion of the retirement 

plan. The one-year wait is the "typical" wait tor eligibility for entry into small retirement 

plans and this is because of the top-heavy rules. The Retirement Plan Simplification and 

Enhancement Act of2017 (HR. 4524), introduced by Chairman Neal (D-}vfA) in the 115'h 

Congress, would allow a small business to bring in employees early without being 

subjected to the top-heavy rules. 

Allow Small am! Jfid-Si:e Companies to Sponsor Emph~J·ee Pay All 4() 1 (h) Plans without 

the 401 (k) Contributions .•!fade by Key Empfli)'ees Triggering the l!Jpl/eavy Rules 

Under current IRS regulations, when a key employee makes a 40l(k) contribution, that 

employee contribution is deemed to have been made by the company and the company is 

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then required to make top-heavy contributions for the non-key employees. Because of this 

rule, small to mid-size employers who would like to otTer 40 I (k) plans must either commit 

to make company contributions to non-key employees or to exclude key employees from 

participation in the 401(k) plan. Many small companies cannot afford to make company 

contributions and it should come as no surprise that most small business owners are not 

motivated to offer plans in which they, and other key employees, cannot participate. Thus, 

from a policy perspective, employees who might have made 40J(k) contributions are not 

given the opportunity because the significant barriers that stand only before small to midsize companies offering this type of plan. Unfortunately, it seems that some members of 

Congress do not understand that most small business owners are not interested in incurring 

additional expense and administrative burdens without any perceived benefits for 

themselves. Employees of small or mid-sized employers would certainly be better off with 

an employee pay-all plan, in which both key and non-key employees could contribute 

without creating a required contribution for the company, than with no plan at all. Under 

such a scenario, the regular anti-discrimination tests would still apply to offer protection 

for non-key employees. Larger companies (which, because of the mathematical tests, are 

never top-heavy) can sponsor employee pay-all 40l(k) plans. This regulation under the 

top-heavy rules unfairly discriminates against small businesses and their employees. 

Simplify the 4111 (h) Oi.vaimiuatiou Testing Re{erred to as the "A f>P" Tests 

The anti-discrimination rules for 401 (k) plans (the ADP tests) are more complicated than 

needed. For instance, the tests set forth in the proposal referred to as the "ERSA" 

(Employer Retirement Savings Accounts- see below) would satisfy the policy goals of the 

ADP while reducing some of the complexity currently inherent in these tests. This could 

be an optional ADP test so that companies who are able to deal with the current ADP tests 

are not required to change retirement plan documents, software and procedures. 

The ERSA proposal called for the contribution percentage for eligible highly compensated 

employees (HCEs) for the plan year not to exceed 200% of such percentage for the nonhighly compensated employees (NHCEs) if the contribution percentage of the NHCEs does 

not exceed 6%. If the contribution percentage of the NHCEs exceeds 6%, then no testing 

would be required. The proposal also has two safe harbors to avoid the simplified 

nondiscrimination test which are similar to the current 40 I (k) safe harbors. 

Eliminate Yearlr .)'l!{e flarbor .\"otice;.fiJr 40 I (kl Sr!fi' !!arbor Jtatcll and Eliminate the 3'!ii 

.Vou-Electil'e Saf'' If arbor Sotice Entirely 

These notices, both required by statute, are costly and burdensome. The match safe harbor 

notice does serve a policy purpose in that it can afTect the amount of 40 I (k) deferrals an 

employee may choose to make in order to receive the match. However, rather than yearly 

notices, the notice could stay in effect unless and until revoked. The notice could be part 

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of the Summary Plan Description. The safe harbor notice for the 3% non-elective safe 

harbor serves no policy purpose at all and should be eliminated as soon as possible. In fact, 

one could argue that it might cause plan participants to reduce their 40l(k) contributions 

since they are being notified that the company will be making a 3% contribution for them. 

The Family Savings Act of 2018 (H.R. 6757), that was introduced as part of Tax Reform 

2.0 in the 115'11 Congress, calls for the elimination of the safe harbor notice for the 3% 

non-elective safe harbor. This bill also would make it easier for companies to adopt a 

non-elective safe harbor in a 40l(k) plan during the year- another welcome change. 

llave an Oplimwl J>e.fiuitionfor Compensation that HI? Can l'nderstmul 

Companies should be given a new optional safe harbor definition of "compensation" that 

is easy to understand and calculate. Many mistakes occur in the determination of 

participants' compensation because the various definitions of compensation are now too 

complicated for a layperson to understand. In fact, it is now too complicated for many 

ERISA experts to understand. As with many other areas of the retirement plan law, we 

now have definitions of"compensation" that are "perfect" in that almost every conceivable 

situation is now covered by regulations and required plan amendments. However this 

perfection has come at a real cost - a loss of accuracy due to a lack of comprehension. 

Reduce Ertensive, Burdl'nsome aud VmwceHarr Reporting to l1artidpants all(/ 

J:'mp/o_J·ers 

The SBCA would recommend that the retirement plan system be rid of unnecessary notices 

that are not conveying timely or worthwhile information as follows: 

Amend ERISA to eliminate summary annual reports. 

Eliminate the requirement for quarterly investment statements (and make an annual 

notice) if participants have Internet access to their investment account information. 

Reduce the number of required notices by consolidating and simplifying existing 

notices. 

Eliminate Required Minimum Distributions (1?:1-fOs) 

It makes no sense to require individuals to remove funds from an IRA or retirement plan 

prior to their retirement or when not needed. Presently, the law requires small business 

owners (and only small business owners) to start receiving RMDs while they are 

working. The demographics of the group comprised of small business owners are such 

that money saved in a plan or an IRA will be crucial to their retirement security. 

4800 Hampden Lane, Bethesda, MD 20814 • (202) 951-9325 
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Further, all IRA owners must start removing money from their IRAs whether needed or 

not by the April 151 following the calendar year in which they attain the age of 70 Y:.. Life 

expectancy appears to be increasing significantly, particularly for the oldest sectors of our 

population. There is no reason why the tax code should be forcing people to remove money 

that is intended to provide retirement security before it is needed. Worse, it is likely that 

the withdrawn money will be spent rather than growing tax deferred inside the IRA It is 

essential that the money be available to the IRA owners when they reach the ages of85, 90 

or beyond. Eliminating required minimum distributions and allowing participants more 

control after the age of 59 Y:, will also help to simplify the tax code. 

At a minimum, the 70 Y:, beginning date should be pushed back to 75. Concern has 

been raised that this change would reduce revenue from taxes but the policy objective 

here is far more important than a short term deferral in revenue. 

;Jiodifj· the Ql'.'>A Rufl's so That thl' Age 35 RcquirN!II'Ilf is Eliminated 

The law now provides that a plan participant subject to the survivor annuity requirements 

of section 401(a)(ll) generally may only waive the Qualified Pre-retirement Survivor 

Annuity (QPSA) benefit (with spousal consent) on or after the first day of the plan year in 

which the participant attains age 35. However, a plan may provide for an earlier waiver 

(with spousal consent), provided that a written explanation of the QPSA is given to the 

participant and such waiver becomes invalid upon the beginning of the plan year in which 

the patiicipant's 35th birthday occurs. If there is no new waiver after such date, the 

participant's spouse must receive the QPSA benefit upon the participant's death. This 

provision does not promote any particular policy goals and is exactly the type of 

unnecessary provision that should be eliminated. 

l.imit lnlf"rim /lmendments 

Several years ago, small plans (like all plans) had been getting hit with almost yearly 

amendments that were costly, and, by and large, unnecessary. These interim amendments 

placed an enormous burden on the small business retirement plan system. When making 

any changes in the retirement plan area, Congress should include a direction to the IRS that 

no amendments are to be required on the new law, including regulations on the new law, 

for a period of at least 3 years, or, better, until the next required restatement of the plan 

document. Summary of material modifications would still be required for changes 

requiring such notice to the plan participants. 

AllmF Companies to L>:ceed Funding Le1·eh to a Defined 11enejit Piau When Times Are 

Good am/ Eaw! [.'p on Funding Rules When l'llere are ,<,;~~nif/mlll f.osses in the J!urkel 

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