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OPPORTUNITIES FOR SAVINGS: REMOVING 

OBSTACLES FOR SMALL BUSINESS 

HEARING 

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

WASHINGTON, DC 

MARCH 7, 2012 

Serial No. 112–14 

Printed for the use of the Special Committee on Aging 

( 

Available via the World Wide Web: http://www.fdsys.gov 
(II) 

SPECIAL COMMITTEE ON AGING 

HERB KOHL, Wisconsin, Chairman 

RON WYDEN, Oregon 

BILL NELSON, Florida 

BOB CASEY, Pennsylvania 

CLAIRE MCCASKILL, Missouri 

SHELDON WHITEHOUSE, Rhode Island 

MARK UDALL, Colorado 

MICHAEL BENNET, Colorado 

KRISTEN GILLIBRAND, New York 

JOE MANCHIN III, West Virginia 

RICHARD BLUMENTHAL, Connecticut 

BOB CORKER, Tennessee 

SUSAN COLLINS, Maine 

ORRIN HATCH, Utah 

MARK KIRK III, Illnois 

DEAN HELLER, Nevada 

JERRY MORAN, Kansas 

RONALD H. JOHNSON, Wisconsin 

RICHARD SHELBY, Alabama 

LINDSEY GRAHAM, South Carolina 

SAXBY CHAMBLISS, Georgia 

CHAD METZLER, Majority Staff Director 

MICHAEL BASSETT, Ranking Member Staff Director 
(III) 

CONTENTS 

Page 

Opening Statement of Senator Herb Kohl ............................................................. 1 

Statement of Senator Bob Corker .......................................................................... 2 

PANEL OF WITNESSES 

Phyllis Borzi, Assistant Secretary, Employee Benefits Security Administration, U.S. Department of Labor, Washington, DC ............................................. 3 

Charles Jeszeck, Director, Education, Workforce and Income Security, U.S. 

Government Accountability Office, Washington, DC ........................................ 5 

Bryan Fiene, QPFC, Senior Vice President and Senior Investment Consultant, 

Private Wealth Management, Robert W. Baird & Company, Madison, WI .... 15 

John J. Kalamarides, Senior Vice President, Institutional Investment Solutions, Prudential Retirement, Hartford, CT ....................................................... 16 

APPENDIX 

WITNESS STATEMENTS FOR THE RECORD

Phyllis Borzi, Assistant Secretary, Employee Benefits Security Administration, U.S. Department of Labor, Washington, DC ............................................. 24 

Charles Jeszeck, Director, Education, Workforce and Income Security, U.S. 

Government Accountability Office, Washington, DC ........................................ 39 

Bryan Fiene, QPFC, Senior Vice President and Senior Investment Consultant, 

Private Wealth Management, Robert W. Baird & Company, Madison, WI .... 60 

John J. Kalamarides, Senior Vice President, Institutional Investment Solutions, Prudential Retirement, Hartford, CT ....................................................... 66 

RELEVANT WITNESS REPORTS

‘‘Private Pensions: Better Agency Coordination Could Help Small Employers 

Address Challenges to Plan Sponsorship,’’ U.S. Government Accountability 

Office ..................................................................................................................... 75 

‘‘Leveraging Multiple Small Employer Plans to close the Retirement Coverage 

Gap,’’ Institutional Investment Solutions, Prudential ...................................... 144 

ADDITIONAL STATEMENTS SUBMITTED FOR THE RECORD

American Institute of Certified Public Accountants, Washington, DC ............... 160 

American Society of Pension Professionals & Actuaries, Arlington, VA ............. 166 

National Federation of Independent Business, Washington, DC ........................ 169 

Plan Administrators, Inc., De Pere, WI ................................................................. 172 

U.S. Chamber of Commerce, Washington, DC ...................................................... 175 

(1) 

OPPORTUNITIES FOR SAVINGS: REMOVING 

OBSTACLES FOR SMALL BUSINESS 

WEDNESDAY, MARCH 7, 2012 

U.S. SENATE, SPECIAL COMMITTEE ON AGING, Washington, DC. 

The Committee met, pursuant to notice, at 2:05 p.m. in Room 

SD–562, Dirksen Senate Office Building, Hon. Herb Kohl, chairman of the committee, presiding. 

Present: Senators Kohl [presiding], Manchin, and Corker. 

OPENING STATEMENT OF SENATOR HERB KOHL, CHAIRMAN 

The CHAIRMAN. Good afternoon to everybody. We’d like to welcome you to this hearing today. 

American workers face a retirement gap, a gap between what 

they will need to retire and what they will have actually saved of 

$6.6 trillion, according to the non-partisan Center for Retirement 

Research at Boston College. To bridge that gap, we need to make 

it easier for employees to save at work, because that is where it 

is easiest for most people to save. 

However, for 42 million American workers, fully a third of the 

private sector workforce employed by small businesses, it’s an opportunity that doesn’t really exist. In fact, according to the Census 

estimates, as few as 29 percent of workers at small businesses have 

access to retirement plans at work. By comparison, 81 percent of 

workers at companies with more than 100 employees have access 

to employer-sponsored plans. 

On the employer side, many small businesses want to offer retirement plans because without them they are at a competitive disadvantage when it comes to attracting and retaining good employees. With this in mind, this committee asked the Government Accountability Office to explore why so few small businesses offer retirement plans to their employees. 

As you will hear today, what the GAO heard from small business 

owners were general concerns about a lack of time and money to 

select and finance plans, as well as worries about being overwhelmed by administrative requirements and the risks of being 

held liable for high fees or for poor plan performance. 

We’ve been working with Senator Enzi and other senators, and 

we plan to introduce bipartisan legislation that will make it much 

easier for small business owners to set up retirement plans. Under 

our approach, which is supported by the U.S. Chamber of Commerce, small businesses would be able to pool together to create 

plans that use experienced financial experts to assume many of the 
2 

administrative and fiduciary duties that small business owners 

have neither the time nor the expertise to monitor. This would 

lower costs and encourage more companies to offer retirement 

plans to small businesses, and ultimately this would result in more 

people saving for their retirement. 

Today we’ll be hearing from the GAO about its findings and the 

Department of Labor about its efforts to reach out to the small 

business community. Then we’ll turn to financial experts, including 

Mr. Bryan Fiene from my own State of Wisconsin, who will discuss 

the difficulties that small businesses face with savings plans, as 

well as the benefits of allowing small businesses to pool together. 

While everyone has an individual responsibility to save, it is also 

essential that all workers have the opportunity to save for their retirement. More small businesses in Wisconsin offer retirement 

plans to their workers than almost any other state in the nation. 

Nevertheless, just one in five small businesses in Wisconsin do 

offer retirement plans to their employees. 

By creating more and better opportunities for small businesses to 

provide retirement plans, we will come closer to building a universal, secure, and adequate pension system that can provide retirement security for all Americans. 

We thank everyone for being here today. We’ll be turning to our 

Ranking Member, Senator Corker, in a moment. 

First, I’d like to recognize my staff director for this committee, 

Deb Whitman, who will be leaving us for a new challenge. Over the 

past five years, Deb Whitman has been a strong, effective, and 

highly skilled leader on the issues that have come before this committee. Her service and deep commitment are truly appreciated, 

and she will be greatly missed. 

So we now turn to Senator Corker, Ranking Member. 

STATEMENT OF SENATOR BOB CORKER 

Senator CORKER. Thank you, Mr. Chairman, and thank you for 

this focus on small businesses and their ability, if you will, to offer 

retirement plans. This is something near and dear to my heart. I 

have been in business most of my life and have offered these types 

of plans and have seen some of the difficulties that can exist, and 

certainly in a country that has so many citizens that are over-leveraged and not saving for the future the way that we’d like to see 

citizens do, just because it’s best for them to be able to do that, and 

with tremendous pressures that we’re going to have longer term 

just over entitlement programs that exist, it’s very important that 

people are setting aside monies. 

And so I very much appreciate your focus on this and am looking 

forward to the witnesses and what they have to say and the many 

questions that will follow. 

So thank you, and thank the witnesses. 

The CHAIRMAN. Okay, Senator Corker, thank you very much. 

We’ll turn to our first panel right now. Our first witness will be 

Phyllis Borzi. She’s the Assistant Secretary of Labor of the Employment Benefits Security Administration. Ms. Borzi has published 

numerous articles on ERISA, health care law, and policy and retirement security issues. She’s been a frequent speaker to legal pro-
3 

fessionals, business, consumer, and state and local government organizations. Welcome. 

Then we’ll be hearing from Charles Jeszeck, Director of Education, Workforce, and Income Security issues at the Government 

Accountability Office. He has spent over 26 years at the GAO working on issues concerning defined benefit and defined contribution 

pensions, the PBGC, Social Security, unemployment insurance, and 

older worker employment issues. We welcome you. 

Ms. Borzi. 

STATEMENT OF PHYLLIS BORZI, ASSISTANT SECRETARY, EMPLOYEE BENEFITS SECURITY ADMINISTRATION, U.S. DEPARTMENT OF LABOR, WASHINGTON, DC 

Ms. BORZI. Thank you, Chairman Kohl, Ranking Member Corker. 

I am Phyllis Borzi, the Assistant Secretary of Labor for the Employee Benefits Security Administration, and I appreciate this opportunity to discuss this afternoon EBSA’s work with small business. 

We agree with you, Chairman Kohl, that employment-based 

plans are the best way to have employees save for retirement. But 

today, less than half of small businesses offer these kinds of plans 

to their workers. So what we do is EBSA assists small employers 

through comprehensive education, outreach, and regulatory programs. What we do is we leverage our education and outreach efforts by partnering with the IRS, with the SBA, with the AICPA, 

with the Society for Human Resource Management, with the Consumer Federation of America and others. 

In 2000, the Department partnered with the SBA and the U.S. 

Chamber of Commerce to launch our program called ‘‘Choosing A 

Retirement Solution For Your Small Business’’, and this campaign 

helped small businesses understand the many retirement plan options available to them. In 2004, the Department worked with the 

SBA, with SHRM, with the AICPA, with the Chamber and the 

NFIB to develop a ‘‘Fiduciary Education’’ campaign. These ongoing 

campaigns create an awareness of the responsibilities involved in 

maintaining a retirement plan. 

After hearing from small businesses that they often look to their 

accountants for advice about establishing a retirement plan, the 

Department began to work with the AICPA, and recently the 

AICPA joined us as a presenter and publicized a webcast on February 23rd as part of America Saves Week. We also are working 

with the AICPA on a fiduciary education webcast series that’s 

scheduled in March. 

Small businesses can access a full range of government resources 

through Business USA, which is a website that was formed, hosted 

by the SBA, formed as a result of a memorandum that President 

Obama issued a few months ago. This site serves as a central portal for Federal agency information of interest to small businesses, 

and it includes a link to the EBSA resources that promote retirement plan sponsorship. 

The Department also has a number of ongoing regulatory and 

guidance initiatives that help small business. Chairman Kohl, I 

know you’ve been very interested and a leader in the target date 

fund set of issues around them. The Department expects to soon 
4 

release tips for plan fiduciaries on how to select these funds. As 

you know, in choosing a TDF, it’s very important to understand the 

differences in investment strategies, in asset allocation, and investment-related fees. Even among target date funds with the very 

same target date, there are wide variations. Our guidance will help 

plan fiduciaries assess these differences. 

The Department has also provided tips for participants who are 

considering choosing a TDF. This we did in conjunction with the 

SEC and proposed disclosure changes to our qualified default investment alternative regulation that focuses on the need for greater disclosure around target date funds. 

I want to briefly mention two of our regulatory initiatives that 

benefit small businesses sponsoring retirement plans. First, on 

February 2nd, the Department issued a final regulation that improves the transparency of 401(k) fees and will help small businesses obtain investment, recordkeeping, and other services at a 

fair price. This will put small businesses on the same footing as 

larger employers and allow them to obtain information about retirement plan services, their costs, and service providers. 

Second, we’re working to update our rule on when a person providing investment advice for a fee becomes a fiduciary under 

ERISA. Our revised fiduciary definition would protect small employers by making it more difficult for advisers to steer them into 

investment options that pay the adviser higher fees. Under the current law, advisers can avoid responsibility for these types of recommendations and for losses that result from imprudent advice. 

Our new rule will hold advisers responsible so that small employers can have confidence in the investment advice they receive and 

won’t be left holding the responsibility for losses that occur when 

what they’ve done is dutifully followed the investment advice 

they’ve been given which turned out to be imprudent. 

Of course, the Department supports efforts to expand small business coverage and provide compliance assistance. However, in so 

doing, it’s essential that ERISA’s protection for workers’ pensions 

be maintained. The Department is aware of promoters marketing 

so-called ‘‘open’’ multiple employer plans to small businesses. According to some promoters, these arrangements allow unrelated 

businesses to avoid ERISA reporting and fiduciary obligations. 

However, the lack of employer involvement may make these plans 

more susceptible to abuse by unscrupulous actors. 

EBSA has had difficult experiences over these decades with similar open employee benefit structures in the group health plan area, 

where multiple employer welfare arrangements, or MEWAs, have 

been the subject of civil and criminal enforcement actions for many 

years. Among other problems, MEWAs have generated large, often 

hidden, fees for the promoters. By bringing this type of product to 

the pension marketplace, we are concerned that it presents a number of complicated legal and policy issues. We have pending requests for guidance and are actively working on trying to answer 

these questions. 

So thank you again for the opportunity to testify at this important hearing. The Department recognizes the critical role that 

small businesses play in the economy, and we’ll continue to expand 
5 

our efforts to help them offer high-quality retirement plan options 

for their workers. Thank you so much. 

[The prepared statement of Phyllis Borzi appears in the Appendix on page 24.] 

The CHAIRMAN. Thank you very much, Ms. Borzi. 

Mr. Jeszeck. 

STATEMENT OF CHARLES JESZECK, DIRECTOR, EDUCATION, 

WORKFORCE AND INCOME SECURITY, U.S. GOVERNMENT 

ACCOUNTABILITY OFFICE, WASHINGTON, DC 

Mr. JESZECK. Thank you. Chairman Kohl and Ranking Member 

Corker, thank you for inviting me here today to discuss the state 

of pension coverage among our nation’s small businesses and the 

challenges these businesses face in helping their employees achieve 

retirement security. My comments are based on the findings of our 

report that this committee is releasing today. 

Small employers are a critical sector of our economy, providing 

employment for many millions of Americans. Businesses with fewer 

than 100 employees, those firms which are the focus of our report, 

employ over 42 million workers, about one-third of the private sector workforce. Our report focuses on the extent of small business 

pension plan sponsorship, the challenges facing small businesses in 

providing such coverage, and the options that have been suggested 

to address these challenges. 

In summary, while longstanding observers of retirement security 

will not be surprised, the rest of us may find the results disturbing. 

Pension sponsorship among small employers is low, the challenges 

they face in sponsoring plans are many, and the numerous proposed solutions each have their advantages and disadvantages. 

In our study, where we were able to link IRS and Labor Department data on small employers and pension plans, we found an 

overall sponsorship rate of about 14 percent. To give context, most 

studies have found at any one time about 50 percent of private sector workers participate in a pension plan. 

We also found that the larger the firm, the more likely it was to 

offer a plan. Among the smallest firms, those with one to four employees and who account for the majority of funds in our study, the 

rate was 5 percent. Sponsorship rates for firms with 26 to 100 employees were higher, at 31 percent. Similarly, small firms with lowpaid workforces are generally less likely to offer a pension plan. 

About 3 percent of small employers who paid an average wage of 

$10,000 per year or less sponsored a plan. 

Of those small firms with plans, about 86 percent sponsored either a 401(k) plan or a SIMPLE IRA. Typically, the larger the firm, 

the more likely it was to offer a K plan and the less likely to offer 

a SIMPLE IRA. 

This low sponsorship rate is likely a consequence of the multiple 

challenges small employers report in considering whether to sponsor a plan. In our focus groups with small employers around the 

country, we heard about many of the barriers that either deterred 

them from forming a plan or made maintaining a plan difficult. 

These businesspeople took time out of their busy lives to tell us 

that they were overwhelmed by the number of plan design options 

from which to choose, and by the administrative requirements to 
6 

be met, and that they were afraid that they were not fully knowledgeable about the legal responsibilities associated with sponsoring 

a plan. Others felt that the existing financial incentives to sponsor 

a plan were insufficient. 

Further, while Labor collaborates with other agencies to provide 

information and guidance to small employers on pension plans, 

most of the business people we spoke to were unaware that such 

information was available. 

Small employers, experts and other stakeholders suggested a variety of solutions to address these challenges. These ranged from 

enhancing available guidance from the government and relaxing 

certain reporting and disclosure requirements, to expanding current financial incentives to start a plan, to introducing broader, 

more universal solutions like the auto-IRA. Each of these options 

poses tradeoffs. For example, some options may reduce Federal revenues, while others may represent significant departures from our 

existing voluntary employer-based pension system. 

Thus, in light of this serious issue, we have recommended that 

Labor, building on its collaborative efforts with other agencies, take 

the lead in exploring this critical issue of small business plan sponsorship in assessing and developing proposals to address these 

challenges and in consolidating current sources of information and 

guidance to make it more accessible. 

That concludes my statement, Mr. Chairman. I’ll be happy to answer any questions you or other members may have. 

[The prepared statement of Charles Jeszeck appears in the Appendix on page 39.] 

The CHAIRMAN. Thanks very much to both of you. 

The idea that we’re talking about is setting up some kind of a 

central mechanism overseen by very professional, qualified organizations to which small businesses can turn to, look to, and collectively go to, to set up pension programs for their employees. 

Is it a good idea? Do you think it’s worth pursuing? Is there any 

reason why we shouldn’t pursue it? What are the chances of being 

successful in the marketplace so that we can increase the number 

of small firms that offer plans to their employees? 

Ms. Borzi. 

Ms. BORZI. Well, you know, the administration hasn’t taken a position on this, so I’m certainly not going to get out ahead of the administration. But let me just explain to you some of the problems 

and challenges we see, because we’ve been looking at these since 

these arrangements have been brought to our attention. 

You know, for as long as ERISA existed, there have been provisions in ERISA that recognize multiple employer plans. The difference between these new arrangements that people are trying to 

organize and the longstanding arrangements that have been authorized under ERISA is that in the new arrangement there is not 

a requirement, as the statute and as our longstanding regulations 

require, that there be a connection among the employers, and we 

do that because the definition of employee benefit plan—the 

threshold issue is, is this an employee benefit plan, a legal issue, 

and the definition of employee benefit plan requires an employment 

connection. 
7 

The plan, the arrangement has to be sponsored by an employer, 

by an employee organization, or by an association or an organization acting on behalf of employers. That employment connection is 

very, very important, and the new arrangements that people are 

talking about would not require that connection. It would allow an 

entity—and I know you’re talking about experienced financial institutions, but there is no distinction in the rule, I mean in the current statute, as to who can sponsor these, except that you have to 

be an association and represent employees. 

The difficulty is that the employer, even in the current multiple 

employer plan, multiple employer trust arrangements under 

ERISA, the employer has to actually take a role in it. Now, that 

doesn’t mean that they can’t pool administrative expenses, that 

they aren’t exempt from many of the fiduciary and reporting and 

disclosure rules. They are under the current rule. But to us, the 

difficulty is looking at the experience that we’ve had in the health 

area, where we’ve got these multiple employer welfare arrangements which for decades have been problematic, both civil and 

criminal problems. 

In the Affordable Care Act, Congress gave the Department of 

Labor new specific tools, like cease and desist authority, and search 

and seizure authority, because we have so many problems with 

health care fraud in these arrangements. The statutory language 

is exactly the same, and the arrangements on the health side 

where we have the problems are where they’ve been marketed to 

a group of unrelated employers, where there’s not an association 

bond. 

Now, sometimes we’ve seen problems even in the association context. But generally, what the law says is that these employers have 

to come together for a purpose unrelated to just sponsoring a benefit plan. So a trade association under current ERISA law can get 

the same economies that you’re talking about. 

And so the proposal that has been put before us which would 

allow a sponsor, if you will—I shouldn’t use the word ‘‘sponsor,’’ it 

confuses the legal context—would allow an entity to put together 

a group consisting of completely unrelated employers is problematic 

because of the statutory rule, and it poses challenges without the 

employer involvement. 

But certainly we’re looking at it, and certainly we’re willing to 

talk with you about it and work with you on it. 

The CHAIRMAN. Good. 

Mr. Jeszeck. 

Mr. JESZECK. Yes, Senator. I should say I can’t comment too 

much on this issue given that we are currently conducting work on 

multiple employer plans for Senator Harkin. I think as Assistant 

Secretary Borzi said, it’s a very complex, very legalistic issue, and 

I think somehow you want to balance the potential for additional 

coverage and opportunity for retirement saving by workers with 

minimizing or ensuring that there is not a potential for abuse and 

that people lose their money. So I think somehow you want to 

thread the needle there. Our report is expected to be completed in 

June and hopefully will shed some light on this discussion. 

The CHAIRMAN. Thank you very much. 

Senator Corker. 
8 

Senator CORKER. Thank you, Mr. Chairman. 

Ms. Borzi, what is it about an association that causes the standards to be higher than just a group of businesses that are unrelated but want to make sure that their employees have benefits? 

It’s hard for me to understand why the standards would be any 

higher, let’s say, for the Association of General Contractors pooling 

together versus just an association of folks in a community in Chattanooga, Tennessee that might want to provide benefits to their 

employees. 

Ms. BORZI. Well, it goes initially to the statutory definition, 

which requires that an employee benefit plan be sponsored by employers, so that there be an employment relationship. But then it 

also says you can have this association of employers. 

You know, if you establish a plan, or if you purport to establish 

a plan with all unrelated employers, people can do that under the 

current law. It’s just that the question is, is one plan established, 

or does each employer establish its own plan but with a common 

administrative structure? Under ERISA, since 1974, we’ve allowed 

this common administrative structure. But the issue is each employer, then, in that context establishes its own plan. 

I mean, one of the things that I want to call to your attention, 

and I think the GAO report included it, but certainly in one of the 

early publications we did that I mentioned in my testimony, this 

‘‘Choosing A Retirement Solution For Your Small Business,’’ which 

we did jointly with the IRS, one of the most important features in 

this is the chart. This shows the various options that are already 

available to small businesses, and you can get to the same result 

that you’re talking about using several of these options. 

So the question really is, and given what the GAO found, that 

employers were confused by the array of choices, it seems to me 

from a policy point of view the question is, would it be better to 

add yet another coverage option, which adds to the confusion and 

concern, or is maybe what Congress should be doing, in conjunction 

with all the rest of us, is looking at this array of choices and saying 

is there a way that we can consolidate? Are there ways that we can 

get economies of scale by combining some of these options so that 

we don’t have—let’s see, this has seven, eight options for small 

businesses. If I were a small business, and I have people in my 

family who run small businesses, and they have asked me what to 

do in terms of sponsoring a plan, there are several—all of these are 

relatively easy options to use. 

I guess the policy question is do we need another option that is 

structured like an approach that, at least in the health care marketplace, has been rife with fraud and abuse? And so I think that’s 

the fundamental question. We’re not opposed to expanding coverage. The question really is what’s the best way to do it. 

Senator CORKER. I appreciate the explanation. And just as an 

editorial comment, I think that what our nation does not need to 

do is get the Federal Government to limit choices that people have 

as it relates to retirement options. It needs to allow competition to 

work and expansion to take place. So I hope it won’t get into a Big 

Brother mode in that regard, and I know you’re not necessarily 

suggesting—— 

Ms. BORZI. No, that’s not what I’m suggesting. 
9 

Senator CORKER [continuing]. Or proposing. You’re just laying 

out some questions. 

Which brings me to another point- I had two larger operations 

over time that were mine. One, we had a profit-sharing plan, and 

it was a pain. I mean, it was troublesome to administer, and you 

were constantly concerned about whether you were getting the 

kinds of yields for your employees that were best and yet safe at 

the same time. 

And then the second, larger operation we had a 401(k), and it 

was like falling off a ladder. I mean, it’s the simplest thing I’ve 

ever been involved in, and there were all kinds of people in the 

community that were well respected that were more than willing 

to educate the employees and carry out the plan. 

I guess I kind of wonder what the problem is. It wasn’t expensive. These were people in a community that were respected. It 

worked very well. I’m really having difficulty understanding what 

the problems are as it relates to small employers, no matter how 

small, being involved in 401(k) plans. I mean, they’re all over the 

place. It’s like a Christmas tree, and all you’ve got to do is select 

one, and they work pretty well. 

So I’m having difficulty understanding what the impediments to 

people doing that are, and why anybody would need a financial incentive, if you will, to want to set aside resources for their employees. 

Mr. JESZECK. Well, we heard a lot of different things from small 

employers. In general—well, one thing was they wanted honest, 

and what they felt to be unbiased information. A lot of 401(k) service providers would approach these firms, these smaller firms, and 

sell them things, and there was a concern of these small firms 

that—not that these providers were going to rip them off or anything, but the fact that they were trying to sell them something. 

So they really didn’t have confidence in the information that they 

got, and whether it was really in their best interest. 

Senator CORKER. Were they hoping that we would tell them what 

was in their best interest? 

Mr. JESZECK. Well, I think they were interested in getting good 

information. In fact, some of the quotes that we got from some of 

these focus groups illustrate this. There was one that said—this 

was a small consulting company. It had 10 employees. It had been 

around for seven years. And they said that if you want to start a 

401(k) plan, it would be great if you could go to one source that 

tells you the information you need to know, what you need to do, 

and the forms that you need to fill out, a checklist of sorts. 

Senator CORKER. Well, we have that available now, right? 

Mr. JESZECK. So I think there is the potential here to help some 

of these employers. The other quotes we had—you know, these 

small businesses, they may be great at sales, they may be great at 

manufacturing, but they may not be financial service people. So 

some of these issues completely baffle them, and we would hear 

that a lot. We had one person who said—— 

Senator CORKER. Just let me focus on each of these. 

Mr. JESZECK. Sure. 

Senator CORKER. I agree that there are people who are more financially astute than others, and of course people out-source and 
10 

get help from all kinds of professional folks most of the time if 

they’re successful. So what is it that would be a rational approach 

to somebody who isn’t particularly good at that? What is it that we 

might suggest that government do to help them be more sound in 

their judgment? 

Mr. JESZECK. Well, I think in our report we do identify a lot of 

the collaborative efforts that Labor has done with other agencies in 

pulling together a lot of useful information. I think in our report 

what we tried to get at is that there could be some improvement 

here. I think if we could get some of this information, match it up 

better with some of these small employers, as a first step, that 

would really help them in feeling more comfortable with some of 

these issues. 

It was really—there was one other quote that I really need to 

share with you. This was a company that had been around for two 

years. It was an HR consulting firm. The quote was about choosing 

their investment options, and the woman said, ‘‘It’s very scary. 

Last night I was having nightmares about picking plan investment 

choices.’’ Now, this person, a small business person, was not a financial person, and this seemed very daunting to them. 

And so I think to the extent that we can say that this is doable, 

it’s not as complicated, there is information that can help them, 

walk them through these issues I think that would be, as a first 

step would be incredibly helpful. 

Senator CORKER. I know my time is up. So what you’re really advocating is just making information available to people so that they 

might be more open to creating these plans. And like Ms. Borzi, it 

looks like she’s doing a lot of that already. 

Ms. BORZI. Yes, and one of the reasons—we know that one of the 

recommendations in the GAO report was that the Department of 

Labor be the central portal, and I know I should be a cheerleader 

for my agency, and I am, because they’ve done a fabulous job, but 

if I were a small businessperson, I wouldn’t think to go to the 

EBSA website for information on retirement. I would think to go 

to the SBA website, which is I believe the reason that the President in this memorandum, in this order he gave all of the agencies 

that deal with this, was to use the SBA’s Business USA as the central portal, because as a small business person, that would be most 

likely where the person would go. 

The SBA put together a working group, and we’re part of it, the 

IRS is part of it, the other agencies that provide financial information and other kinds of resources for small businesses are part of 

it, and on that website there are links to our publications, to our 

website. We have a specially dedicated small business page on our 

website, and our folks put a lot of effort into it, and it is underutilized. I’m willing to certainly say that. 

So I think we need to think about how better to get the information out that’s already there, which doesn’t mean that there isn’t 

room for improvement in terms of getting additional information 

out. 

Senator CORKER. I appreciate both of you coming here. And I, 

along with Chairman Kohl, would certainly love to see more people 

having plans. They are so simple, so simple today to create, and 

I think if people did need information, having a place to go, one 
11 

central place would be helpful. And I think you’re right to be sensitive that most employers are pretty reticent about going to the 

Department of Labor for anything. 

Ms. BORZI. I just don’t think they think about it. 

Senator CORKER. Yes, I agree. Thank you. 

The CHAIRMAN. Just one question Ms. Borzi before we turn to 

Senator Manchin. We’re well aware of the dismal statistic of how 

few small companies offer retirement plans. On the one hand, I 

think I have been listening to you say that there are many options 

that they can go to, but we still have that statistic to deal with. 

So we’re trying to come up with ways and means to get to a desired 

goal, which is to have more and more small companies engaged in 

offering retirement plans. Is that right? 

Ms. BORZI. Yes. I—— 

The CHAIRMAN. I mean, do you agree with that? 

Ms. BORZI. I do. 

The CHAIRMAN. Or are you saying we have a system, it just 

doesn’t seem to be clicking? 

Ms. BORZI. I’m not for closing the fact that we should maybe look 

at ways to simplify the system, maybe take some other steps. 

The CHAIRMAN. Okay. 

Ms. BORZI. I’m not saying that our system is perfect right now, 

that it’s just a matter of people not having the information. 

I mean, I’ve been in this business for 40 years. I haven’t been 

at the Department of Labor for 40 years, but I’ve been in this business for 40 years, and it’s my observation, taking off my Department of Labor hat, as Phyllis Borzi, citizen taxpayer, it’s my observation that what we’ve been able to do, what Congress has done 

over particularly the past two decades, in focusing on trying to simplify options and give more options to small business, I think what 

we’ve done, unfortunately, is we’ve been able to pluck all the lowhanging fruit. And now what we’re left with is the really intractable problem of how to encourage small employers who, given all 

these other options, haven’t taken those options. 

It’s a hard, hard thing to do, and I’m the last person in America 

that’s ever going to say we should give up, because my whole career has been devoted to try to expand opportunities for small businesses and for participants to have retirement plans. So I think we 

do need to work on this. 

The CHAIRMAN. Senator Manchin, do you have a comment, or 

two or three? Go ahead. 

Senator MANCHIN. I’m very sorry. If I ask a question that has already been asked, just stop me. But, Ms. Borzi, if I may, small 

business owners are concerned about plan administration fees, as 

you know, and all the different paperwork that goes with that. Not 

just a bottom line, but I’d like to have your perspective to ensure 

that the fiduciary duties to their employees they’re going to be able 

to meet. They’re concerned about can they do what they’re going 

to have to do with the regulations, or are there going to be undue 

regulations put on them. 

Ms. BORZI. Well, we are working on some regulations that will 

ease the burden on small employers, but also will give them more 

tools to be able to make better choices. For instance, I did talk in 

my testimony about our 401(k) fee rules that will require the serv-
12 

ice providers to give plan small employers—it’s primarily a problem 

of small and medium size employers—all the information about 

what they’re actually paying for those investment options that 

they’re offering to their employees, what they’re paying in administrative fees, in recordkeeping fees, in investment fees. 

The problem of fiduciary responsibility for small employers is a 

difficult one, and we are looking at, in several different marketplaces, looking at ways to ease the burden. 

Senator MANCHIN. What is identified as the most burdensome 

regulations, or what’s the most burdensome thing they have as 

businesses responding to—— 

Ms. BORZI. I think just the whole notion of establishing a retirement plan is frightening to a lot of employers. I don’t know that 

they necessarily understand what that means, but the fact that 

they don’t understand it makes it more frightening to them than 

if they did understand it. 

Senator MANCHIN. Are we talking about incentives or reducing 

regulations? What do you think would be most helpful? Are you 

getting any input? 

Ms. BORZI. Well, we would certainly welcome input. We’ve gotten 

a lot of input as part of—— 

Senator MANCHIN. What do you think will work? 

Ms. BORZI. Well, we’re not quite sure yet. I think it has to be a 

combination of all of the above. So we are looking at regulations. 

We’re looking at updating regulations. We’re looking at regulations 

that could be consolidated or reduced. We’re looking at all sorts of 

things. 

Senator MANCHIN. Sir, if I may ask you, many employers probably receive their information regarding investment options from 

probably a plan adviser. What makes you think they would come 

to the government for this advice? 

Mr. JESZECK. Well, Senator, first of all, we found in our study 

that people used third-party service providers in a variety of areas. 

Not everybody used an investment adviser. We don’t suggest that 

they necessarily should go to the Federal Government for that. I 

know that there are regulations concerning fee disclosure. That 

should be helpful, we didn’t recommend that they go to the Federal 

Government to obtain investment advisors. 

I do want to get back to your question about fiduciary responsibility because that was something that we heard from a lot of the 

small businesses. People are afraid of getting sued even if, in fact, 

if they talked to an attorney or something, that the likelihood of 

that happening was really quite remote. That was something that 

they were afraid of. The term itself is somewhat a little fearsome 

for some of these companies. 

The other issue is in terms of paperwork. For a lot of small businesses it’s not that they differentiate between the Form 5500 and 

annual reports and plan amendments. To them it’s just one big 

group of—a bunch of paperwork requirements, and it just seems 

overwhelming, which is one of the reasons why, and given the discussion we’ve had here, that we recommended that there be a task 

force that Labor would head to work with other agencies that, 

among other things, would look at those reporting and disclosure 
13 

requirements and maybe look to see the extent to which those 

things could be streamlined or simplified. 

So that was part of the basis for our recommendation. 

Senator MANCHIN. Thank you. 

The CHAIRMAN. Senator Corker. 

Senator CORKER. Thank you. 

On the fiduciary piece, what kind of standard is there really? I 

mean, if you have—and maybe the second panel will speak to this. 

But what is the real risk? I know people are getting concerned 

about terms and liabilities that maybe they don’t quite fully understand. But if you have a legitimate group that’s handling this on 

your behalf, what is your real exposure as an employer in that fiduciary responsibility or relationship? 

Mr. JESZECK. I would defer to—— 

Ms. BORZI. Well, this is one of the difficulties, is that under 

ERISA, the people who we can hold accountable for imprudent investments, for instance, are people who are called fiduciaries, but 

many of the people today who provide investment guidance, et 

cetera, advice to small employers, what options to offer your employees, what should the platform look like in your 401(k), many 

of those people take the position that under the Department of Labor’s old 1975 regulation that existed before 401(k) plans even were 

in existence, that they are not fiduciaries, and that was what I was 

alluding to in my testimony. 

What we’re trying to do through our regulation is reduce the burden on small employers in particular, because what happens is a 

small employer, recognizing their inability to handle all these— 

make all these financial decisions themselves, will quite often 

reach out and hire somebody, a consultant, a broker, somebody to 

give them investment advice, and then they—— 

Senator CORKER. Hopefully they do, yes. 

Ms. BORZI. Right, and we want them to do that. But then when 

they follow that individual’s advice or that entity’s advice, and it 

turns out ultimately to be an imprudent investment, the person 

giving the advice steps back and says ‘‘Don’t look to me.’’ 

And so we wind up at the Department of Labor, when we conduct our investigations, if there’s a substantial loss to the participants in the plan because of an imprudent investment decision, we 

wind up with a Hobson’s Choice. Either we leave the loss 

unaddressed or we have to go after the employer, in many cases 

a small employer, who is just as much a victim as the participants 

are because they hired an investment adviser. The statute says if 

you’re an investment adviser for a fee, so if you get paid, then 

you’re a fiduciary, but our regulation is mismatched with today’s 

marketplace. 

So one of the things we are doing, and that’s what I alluded to 

in my testimony, through regulation is to try to make it easier for 

small employers, relieve the burden for them. 

I’ll tell you one of the things that businesses are most afraid of 

in the fiduciary context, and I think it’s really just a misunderstanding of how the fiduciary rules play out in the law and in the 

cases. When somebody tries to decide whether a fiduciary’s decision 

is prudent—that’s the basic standard. Your decision has to be pru-
14 

dent, it has to be made for the exclusive benefit of the participants 

and beneficiaries. That’s sort of the simple benchmark. 

In deciding whether a decision on the part of the fiduciary is prudent, you don’t use hindsight. You don’t say, oh, gosh, they invested in a hedge fund and it lost all this money. What you do is 

you look at what are the facts that the fiduciary had in front of him 

or her at the time they made the decision. Did they act prudently? 

Did they hire somebody to advise them if they didn’t know what 

they were doing? Did they prudently select that person? Did they 

monitor what was going on? 

So it isn’t if there a loss at the end of the road and, oh, my God, 

I’m going to get sued and I’m going to lose my business. That isn’t 

the way the fiduciary standard is approached. But I think most 

small businesses—I can say this, again, from my own dealings with 

friends and family that run small businesses—I think they just 

don’t understand that. I think that what happens, I think they 

think that they are the ultimate guarantors of the success of any 

investment they offer to their employees, and that’s just not the 

case. 

Senator CORKER. So it sounds like you can, without any legislative action, you can easily fix that through regulatory action at the 

Department level. 

Ms. BORZI. We can reduce the burdens on small employers significantly through regulatory action. 

Senator CORKER. I know it’s taking a long time, but I think this 

is very important to the topic. So it seems like you can fix that 

part. 

Now, on the investment part, aren’t many of these 401(k)s today 

set up in such a way that the employee is actually making the decision? They’ll have four or five or six, or maybe more options of investment modes, and the employees themselves are really directing 

the type of investments? 

Ms. BORZI. And they need investment advice as well. 

Senator CORKER. But it still eliminates the fiduciary piece to a 

degree when that’s happening. 

Ms. BORZI. That’s right. But people who give them investment 

advice, as well as the people who give the employers investment 

advice, the employees need to know, the participants in the plan 

need to know that those people who give them investment advice 

are doing so in an unbiased way and that they can rely on the advice. 

Senator CORKER. Okay. Thank you. 

The CHAIRMAN. Thank you both very much. You’ve been very 

helpful. 

Ms. BORZI. Thank you, Mr. Chairman. Thank you. 

The CHAIRMAN. So we’ll turn now to our second distinguished 

panel. 

First we’ll be hearing from Bryan Fiene, who is the Senior Vice 

President and Investment Consultant at Robert W. Baird & Company, Inc., in Milwaukee. Mr. Fiene is from Madison. He has spent 

19 years in the financial industry serving dozens of small and medium-sized retirement plans that encompass thousands of people 

across southern and central Wisconsin. 
15 

And next we’ll be hearing from John Kalamarides, who is a Senior Vice President at Prudential Retirement, where he leads the Institutional Investment Solutions business. That includes Prudential 

Bank and Trust, Stable Value Funds, Institutional Retirement Income Products, and Institutional Investments. He’s a frequent 

speaker at industry, professional, academic, and public policy conferences, as well as forums on practices and trends in the retirement area and the challenges facing today’s plan sponsors and participants. Currently, he oversees more than $120 billion in assets. 

So, Bryan why don’t you say a few words? 

STATEMENT OF BRYAN FIENE, QPFC, SENIOR VICE PRESIDENT AND SENIOR INVESTMENT CONSULTANT, PRIVATE 

WEALTH MANAGEMENT, ROBERT W. BAIRD & COMPANY, 

MADISON, WI 

Mr. FIENE. Thank you, Chairman Kohl and Senator Corker and 

Senator Manchin. Good afternoon. I appreciate the opportunity to 

provide this testimony regarding small employer challenges to retirement plan sponsorship. As a financial advisor with Baird, I’ve 

served dozens of small businesses for 19 years. I am a designated 

qualified plan financial consultant, and I work with many small 

businesses on lots of issues. 

My firm, as you said, Baird, was established in 1919, and we 

have 100 locations around the country, including one in Nashville 

with a couple of good retirement plan teams down there. 

As a resident of Sauk Prairie, which is a very small town in 

southern Wisconsin, I’m very proud of our state, and Wisconsin has 

got dozens of world-class publicly traded companies, just as Tennessee does. I think we can all be proud of that, and I think the 

goal here, if I understand it correctly, is to get more participation 

from small businesses. 

We need to encourage these small businesses to succeed so that 

they can grow up to be household names and employ thousands of 

American workers. I think that’s everybody’s goal. So my testimony 

is going to focus on the following points. 

First, there are lots of reasons driving small employers away 

from offering retirement plans. We’ve heard some of those today. 

Second, Federal and state agencies have an opportunity to improve how they support small businesses, understanding whether 

and how to offer a plan. 

Third, financial advisers and plan providers play a critical role 

in helping small employers cope with challenges of adopting and 

maintaining a plan. 

Fourth, many small employers seeking to establish a plan I think 

will be helped by expanding the multiple employer plan option, and 

I’ll talk about that a little bit as well. 

Pre-crisis, businesses needed a strong retirement plan to recruit 

and retain good people, as you said in your opening remarks, Senator Kohl. These days, all they need is an ad in the newspaper. It’s 

really not that difficult to retain and find good people. 

The small business owner’s personal finances are very complex, 

and generally they have most of their net worth tied up in their 

businesses, and a lot of their free cash is in their retirement ac-
16 

count. You guys are both businessmen, so you know what I’m talking about. 

Faced with a lot of different choices, many small businesses have 

cut employer contributions for immediate survival and to fortify 

their balance sheets in case the economic situation worsens. Unfortunately, this is detrimental to participants, but many small businesses are left with few other options. They look at things at a very 

high level, asking what will this do to enhance my business and 

what is my risk in implementing and maintaining it. Those are 

probably their two biggest concerns. 

In studying a plan, small business owners will look at the risk 

versus reward, as they would with any investment. While the Department of Labor website offers a myriad of information, rather 

than turn to government for guidance, they often will seek out a 

trusted adviser to help navigate this decision, as they would any 

other related to their business. They will probably start with a financial accountant, adviser, or attorney. As Phyllis stated earlier, 

her friend asked her what kind of retirement plan they should 

start. That’s where it starts with small businesses. 

A small business owner, like most Americans, has many competing priorities for their income. These priorities include Federal, 

state, and payroll taxes, living expenses, college savings for children. Often now they’re caring for their own aging parents, and 

frankly their own retirement becomes a back-burner issue. 

Of course, it would be remiss for me not to commend Congress 

and the Department of Labor for many recent innovations, and I 

think maybe the most powerful one is auto-enroll. I can’t emphasize enough how powerful that tool is going to be, I think, to grow 

retirement plans and help people down the road. 

Since I’m almost out of time, I’m going to move on, and certainly 

if you have questions, feel free to ask. I think, Senator Corker, you 

had a question about understanding why small businesses are not 

starting plans, and I think I might have an answer for you on that. 

So thank you for inviting me out here. Washington is a beautiful 

city and I’m having a great time. 

[The prepared statement of Bryan Fiene appears in the Appendix 

on page 60.] 

The CHAIRMAN. Great. Thank you, Bryan. 

John, go ahead. 

STATEMENT OF JOHN J. KALAMARIDES, SENIOR VICE PRESIDENT, INSTITUTIONAL INVESTMENT SOLUTIONS PRUDENTIAL RETIREMENT, HARTFORD, CT 

Mr. KALAMARIDES. Thank you, Chairman Kohl, Ranking Member 

Corker, and members of the committee, for your invitation to discuss the challenges facing small employers in providing retirement 

plans. The focus of my testimony is going to be on multiple employer plans, a structure that enables small business owners to 

pool their resources into a single plan to enjoy efficiencies typically 

limited to large plan sponsors and to pass those benefits along to 

their employees. 

As a supplement to my written testimony, Prudential is releasing 

a white paper on this topic. Also, the U.S. Chamber of Commerce, 

which has reviewed and supports my testimony, will release its 
17 

own white paper on the challenges facing plan sponsors and will 

propose solutions, including multiple employer plans. 

This afternoon I’d like to discuss the scope of the retirement coverage gap, the reasons for the gap, how multiple employer plans 

can help close the gap, and recommendations for expanding access 

to multiple employer plans. 

Too many employees do not have access to workplace retirement 

plans, and therefore do not save adequately. The Employee Benefit 

Research Institute found that more than 51 percent of today’s 

workers, or 78 million Americans, have no access to workplace retirement plans. This lack of coverage is most acute among employers with less than 100 workers. EBRI found that only 36 percent 

of employees with 10 to 100 workers provide plans, compared to 

nearly two-thirds of larger employers. EBRI also found that 58 percent of workers who do not participate in a retirement plan have 

saved less than $10,000, as compared to $59,000 saved by those 

who do participate. In short, the smaller the employer, the less 

likely their workers will have saved adequately for retirement. 

Small employers don’t provide retirement plans due to cost, administrative complexities, and concerns about fiduciary liability. 

Looking from the perspective of an employer, I have an obligation 

to prudently select the plan service providers and investment options, assess whether the compensation I’m paying to the plan service providers is reasonable, ensure that my employees receive comprehensive disclosures about the plan’s investment options and 

fees; and on the plan administrative side I have a legal obligation 

to ensure my employees receive a compliance summary plan description and quarterly benefit statements, I have to file an annual 

financial report, and perhaps hire an independent qualified public 

accountant. And finally, as an employer, I need to understand the 

serious penalties and litigation risks of not complying with these 

requirements. 

Clearly, these requirements are important to protecting plan participants, but understanding the requirements and liabilities can 

prevent many employers from establishing retirement plans, particularly small employers who, in my view, are less likely to be experts or have the finances to even hire an expert. 

The administration recognized these challenges in framing their 

auto-IRA proposal. That proposal, as I understand it, is premised 

on the adoption of a model plan under which employer responsibilities and liabilities would be limited to making timely employee 

contributions. We believe these principles can and should be extended to multiple employer plans. 

Multiple employer plans can offer employers the opportunity to 

reduce plan costs, achieve economies of scale through pooling, and 

pass those benefits along to their workers. A study by Deloitte and 

the Investment Company Institute referenced in our white paper 

demonstrates these potential savings. The average expense of a retirement plan for an employer with fewer than 100 employees is 

132 basis points. If 100 small employers were to pool their assets 

in an MEP, expenses could be reduced to roughly 50 basis points, 

generating more than a 60 percent savings for participants. 

MEPs also afford employers a practical means by which to have 

administrative and fiduciary responsibilities carried out by profes-
18 

sionals. We at Prudential believe the MEP structure, with the 

adoption of a standardized plan design, would benefit small employers in particular. We refer to this combination of an MEP and 

a standardized plan as a multiple small employer plan, which is 

the focus of our white paper. An MSEP would include a model plan 

document to provide uniformity and increase portability, provisions 

for automatic enrollment, automatic contribution escalation, and a 

qualified default investment alternative. It would include a $10,000 

annual contribution limit, and it would restrict participant loans 

and hardship distributions. 

To provide for MEP growth, we believe four legislative or administrative actions are required. First, expand the standards for MEP 

sponsorship. Second, limit the responsibilities of employers to making timely employee contributions. Third, limit the liability to the 

non-compliant employers, not all. And fourth, eliminate non-discrimination testing. 

We welcome the opportunity to work with the committee and the 

agencies on these important issues. This concludes my testimony. 

I’d be happy to answer any questions. 

[The prepared statement of John J. Kalamarides appears in the 

Appendix on page 66.] 

The CHAIRMAN. If we had a goal of getting up to 50 or 60 percent 

of all small businesses providing pension plans, savings plans, is 

that a goal that we should have as a public policy in this country, 

or something of that sort in terms of a goal? And number 2, and 

I think you began to touch on it, John, how do we get there? I 

mean, is it worth pursuing? Is it a good public policy? I happen to 

think it is. So what do we need to do, John? 

Mr. KALAMARIDES. I think increasing retirement security for 

American workers is an incredibly important public policy. 

The CHAIRMAN. Yes. 

Mr. KALAMARIDES. To do that, a very efficient way for people to 

save for retirement is through the workplace. 

The CHAIRMAN. Yes. 

Mr. KALAMARIDES. We see the benefit of that through behavioral 

finance, paying yourself out of your paycheck first, and benefitting 

from the economies of scale and the ERISA fiduciary oversight that 

we get at the workplace. 

The 401(k) system works for larger employers. How can we bring 

that 401(k) system that’s working so well to smaller employers? By 

doing the steps I outlined in my oral testimony, expanding access 

and promoting multiple small employer plans, allowing small employers to overcome the hurdles. Allow them to pool their purchasing power. Allow them to have the responsibilities that are appropriate for them, and to be able to rely on financial professionals 

for that critical guidance and fiduciary oversight. 

The CHAIRMAN. Yes. Bryan, do you agree with much of what 

John said? 

Mr. FIENE. Yes, I agree with what he said. I think, to add to 

that, I think the goal is terrific. I think it could be even higher. But 

the blockades to these small businesses are many. 

Senator Corker, you talked about your business and it was like 

falling off a ladder to have a 401(k). When you get down to the very 

small employers, the costs are very high versus a larger employer. 
19 

Just to give you an example, I went on your website in Tennessee, and 49 percent of the employers in Tennessee are five people or less. Two-thirds are 20 people or less. I don’t know any financial adviser or plan provider that would target that group to 

help them start retirement plans because it’s not economically feasible. It takes approximately the same amount of time to set up a 

small plan as it does a large plan, but there’s not any revenues 

there unless the business owner fronts, pays that bill up front. If 

it’s spread across plan participants like it is in a larger plan, it’s 

not a big deal. 

But when it’s in a small plan, if you’ve got $1,000 for start-up, 

and maybe it’s another $2,000, $3,000 a year to administer the 

plan, you’re talking about 4 percent on a $100,000 plan. You’ve got 

five people, it takes $20,000 for the first year to get to $100,000. 

The financial adviser is also not compensated very much on that. 

We may net $100 on 30 or 40 hours of work with the small businesses. We do most of those businesses as a favor to our other clients, and in some cases we do it because the businesses will grow. 

But I think what the MEP—the ability to bolt on a small employer onto a plan that’s got all of the qualities of a large plan, and 

I personally think if you allowed the expansion of MEPs, you’d see 

start-up costs go away. Competition would take care of that problem. I think features and benefits would go up, and as these multiple employer plans get larger, costs go down. It’s happening all 

the time. 

So I think that’s a great solution. 

The CHAIRMAN. Senator Corker. 

Senator CORKER. Yes, regarding multiple employer plans for me, 

I like association health plans, I like anything that allows people 

to band together and lower cost. 

I do think there are people who service small companies who do 

other things for those small companies, like health insurance and 

those kinds of things—20 and smaller companies do those things 

and are glad to do them. But that doesn’t mean I don’t want to expand that, and I can’t imagine why we would want to keep that 

from happening. 

As a matter of fact, you have to wonder why even an employee 

wouldn’t have the ability, whether their employer was a member 

of this or not, if the employer wasn’t making contributions on their 

behalf—certainly we did, and I think employers should - you would 

wonder why an employee, even if their employer wasn’t a member, 

couldn’t do it, right? I mean, we want to encourage that as much 

as we can, and as long as the standards are there, it seems like 

we’d want to do everything we possibly could to allow people to 

have the critical mass but also the opportunity to get in. 

The $10,000 limit issue you mentioned, what are you referring 

to when you say that? 

Mr. KALAMARIDES. I’m referring to the amount of a deferral limit 

of pre-tax contributions to this particular plan. 401(k) plans have 

a higher limit. Currently, they’re well over $16,000, plus there’s a 

catch-up contribution. When we thought about the multiple small 

employer plan concept, our whole goal was to increase coverage and 

keep cost and efficiency as clear as possible. To be able to do that, 
20 

we structured a proposal that was simple and got to the essence 

of contributions. 

We also want to make sure that—— 

Senator CORKER. The maximum you can put in on a tax-deferred basis would be $10,000? 

Mr. KALAMARIDES. That is what is in the multiple small employer plan proposal. 

Senator CORKER. Why would you do that? 

Mr. KALAMARIDES. You would do that in a number of ways. 

Senator CORKER. No. Why would you do that? 

Mr. KALAMARIDES. You could make it larger. The reason why we thought it was appropriate to have $10,000 is it gave the incentive 

that if a company or a group of individuals or a small business 

owner wanted to have the maximum contribution in a 401(k) plan, 

that they would then adopt all the standards of a 401(k) plan, not 

just what this multiple small employer plan concept is. 

Senator CORKER. But why? 

Mr. KALAMARIDES. If we look—you could easily make it larger if 

you thought that that was an appropriate public policy, the tax deferrals associated with it. 

Senator CORKER. What is in a 401(k), just for our education? 

Mr. KALAMARIDES. A 401(k) deferral is well over $16,000, and 

there’s a catch-up contribution of $6,500 as a maximum deferral. 

An IRA—— 

Senator CORKER. And how far can you go back to catch up? 

Mr. KALAMARIDES. You can only provide contributions this year. 

If you are over a certain age, you’re allowed to make catch-up contributions so that you can catch up towards the savings that you 

missed in previous years. 

Senator CORKER. So $16,000 is the maximum tax-deferred contribution that can be made, including the employer contribution 

component? 

Mr. KALAMARIDES. No, not including that. The employee’s contribution. 

Senator CORKER. So then the employer, how much can the employer put in on behalf of an employee that is tax deferred? 

Mr. KALAMARIDES. I think the maximum amount is $36,000 in 

total contributions that an employer and an employee can put into 

a current 401(k) plan. 

Senator CORKER. And so why wouldn’t that be the limit on a 

multiple employer plan? 

Mr. KALAMARIDES. When we were making this proposal, we were 

trying to balance both the tax consequences and the incentives between and match up the capabilities between the deferral limits 

and the benefits and the responsibilities of an employer. An IRA 

has a much lower deferral limit. A 401(k) plan with increased responsibilities would have a higher limit, trying to create a continuum of options as we talked about, and the previous panel 

talked about as well. The increased deferral limits would become 

increased responsibilities. 

Senator CORKER. So it’s maybe a camel nose into the tent approach, too, that over time we could build upon. 

Mr. KALAMARIDES. Indeed. 

Senator CORKER. Any comments, Bryan? 
21 

Mr. FIENE. Yes. In my written testimony, I put an example in there of someone that makes a $17,000 contribution every year for 

25 years, and if they make $100,000 a year, they end up at a 5 percent return worth about $900,000. And with a 5 percent return on 

that, that’s $45,000 a year pre-tax. Department of Labor’s website 

said they need between 70 and 90 percent of their income replaced 

at retirement. So they come up about 50 percent short, even with 

a $17,000 contribution. 

I guess we differ on this one. I think that they should be allowed 

to put in enough to get to where they need to be. 

Senator CORKER. John, you’re just basically trying to get something passed. Is that correct? 

Mr. KALAMARIDES. I’m not opposed to more. I recognize that that 

is probably the minimum necessary to make that attractive to a 

small business employer versus having an IRA just for themselves 

and not offering any solution to their employees. 

Senator CORKER. I applaud both of your efforts to try to make 

these kinds of things happen. I know for years, in our own business 

activities, we did everything to try to create association health 

plans. I know that was very difficult. But this, with all the issues 

that we all face relating to people and their standard of living after 

retirement, seems like a no-brainer, and I look forward to working 

with Senator Kohl and others to hopefully cause something like 

this to happen. 

So I thank you very much for your testimony. And I would agree 

with Bryan on the limits, for what it’s worth. 

The CHAIRMAN. Some people have expressed concern about thirdparty plan administrators not looking out for the plan participants 

in the same way as an employer himself might. Is that legitimate, 

or do you think that’s not a big issue for us to be concerned about? 

Mr. KALAMARIDES. I think that financial service providers that 

are experienced do take their role very seriously, and there is 

precedent for financial service providers acting in that capacity. 

When a plan exists and it is abandoned by that particular employer due to bankruptcy or death of the small business owner and 

the like, there are provisions already within the IRS code and the 

ERISA regulations that allow an independent trustee and financial 

service provider to act in a wide capacity, and we’ve included in our 

written testimony a proposal that new legislation or new regulatory 

guidance could build off of to specifically protect the employees by 

allowing financial service providers to act in that very similar capacity to abandoned plans. 

The CHAIRMAN. Good. 

Bryan, would you be worried about that? 

Mr. FIENE. No, I wouldn’t be worried about it. I’ve seen, in my 

19 years, I’ve seen an evolution by service providers from something that was very, very basic to something that is very, very sophisticated now. They can reach out, all the way down to single 

participants in plans now with education programs. They’ve got 

safeguards in place to prevent fraud and misuse. A few years ago 

when the lawsuits came down on mutual funds about the active 

trading in the mutual funds, they’ve got systems now where they 

can track your trades, whether it’s 30 days or 60 days or there’s 

a penalty or you can’t get back in. 
22 

I think it would be fairly easy to work with a service provider 

and DOL or whoever is worried about it and work out a solution 

that everybody thinks is safe for participants. 

The CHAIRMAN. Thank you. 

Senator Corker. 

Senator CORKER. Yes. I assume that anybody taking on the responsibility of administering a plan would be very open to very 

stringent penalties in every way if there were any kind of failures? 

I would think the fiduciary standard for any kind of sponsor would 

be far beyond what any employer would have of a personal plan. 

I mean, that’s the kind of responsibility you’re looking at, right? 

Mr. FIENE. Yes. It’s been my experience that whenever a provider makes a mistake, and mistakes are made, in every instance 

they calculate whatever damages may have been done and they fix 

it immediately. 

Senator CORKER. Are there insurance requirements or bond requirements or anything that are typically—is that the kind of thing 

that would be envisioned with multiple employer plans? 

Mr. FIENE. That’s really not my area of expertise, but I would 

think you could work that out with them. 

Senator CORKER. So you would envision exceptionally strong fiduciary standards and liabilities if people were to enter the business of being plan sponsors, and you would envision insurance and 

those types of things to cover activities that ended up because of 

fiduciary issues—not necessarily investments that went sideways 

but fiduciary responsibilities, you would envision tremendous liabilities being held by these folks? 

Mr. FIENE. Yes. I think it’s critical that some of these fiduciary 

liabilities are transferred from plan sponsors that know nothing 

about fiduciary responsibility to sophisticated financial institutions 

that know everything about fiduciary liability. 

Senator CORKER. But do you see those duties even being stepped 

up beyond what would be at an employer level? 

Mr. FIENE. I don’t think that they would worry about tightening 

up procedures and policies at all. They’ve been doing it for 30 

years. 

The CHAIRMAN. John, any other comments you want to make? 

Mr. KALAMARIDES. Thank you for the committee’s attention to 

this important issue, and for increasing retirement security and 

coverage amongst small businesses. 

The CHAIRMAN. Thank you. 

Mr. FIENE. Thanks for having me out. 

The CHAIRMAN. Thank you, Bryan. 

Thanks, folks. 

[Whereupon, at 3:20 p.m., the hearing was adjourned.] 
(23) 

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Æ