At last there is hope that the 50 million-plus private-sector workers not covered by a retirement plan will see some form of a tax-deferred retirement savings vehicle offered to them in the near future.
There are now three different approaches being offered to the mostly small employers of those workers. Any combination of these approaches could significantly increase the number of private-sector workers with retirement savings.
First is the SECURE Act, which cleared the House and Senate on Dec. 17 and Dec. 19, respectively, attached to a $1.4 trillion spending package. At press time, President Donald Trump was expected to sign it. The provisions of this bill make it easier for small employers to join multiple employer plans or to set up 401(k) plans. The multiple employer plans would spread the costs associated with defined contribution plan administration across member companies, reducing costs for individual employers.
It also would provide a maximum tax credit of $500 per year to employers who create a 401(k) or an employer-sponsored IRA with automatic enrollment, and enable businesses to sign up part-time workers who either work 1,000 hours or three consecutive years with 500 hours of service.
The second is Secure Choice. Such programs are now open in three states and being considered by other states. These, like multiple employer plans, take almost all of the cost and administrative burdens off the shoulders of small businesses. The states take over most of those burdens.
The third entry comes on the heels of a Department of Labor rule finalized in September that allows businesses to band together to offer defined contribution plans, under limited circumstances. The U.S. Chamber of Commerce is encouraging state and local chambers to set up multiple employer plans — referred to as association retirement plans — in their communities.
If state and local chambers of commerce, at the urging of the U.S. Chamber and with its help, become engaged in encouraging and assisting small businesses in their regions establish association retirement plans, this could be a game changer.
Thousands of state, city and local chambers of commerce operate in the U.S. with at least one full-time paid staff member, and many more are volunteers. The chambers are organizations of business owners established to promote the interests of the affiliated businesses. One of those interests should be to provide retirement security to their employees at an acceptable cost.
The chambers' regular meetings provide opportunities to promote the idea of a multiple employer defined contribution plan, pointing out how an association plan could greatly reduce the financial costs and administrative burdens of providing a tax-deferred retirement plan to their employees.
The cost and administrative burdens are key reasons small employers give for not offering their employees a retirement plan.
While the U.S. Chamber cannot itself set up an association retirement plan, it can provide support to the local chambers by developing materials for establishing their plans and by identifying the best-performing vendors the plans might engage.
The involvement of the U.S. Chamber and its local affiliates combined with the eased requirements of the SECURE Act, could have a powerful effect for millions of workers in small- and midsize companies.
The U.S. Chamber should proceed expeditiously to work with the local chapters to sponsor association retirement plans.
All three avenues open up a much-needed path for workers to better save for a more secure retirement.