A bill that would help small businesses set up simplified defined benefit plans was introduced in the House that would be fully funded at all times and in which employees will be fully vested as soon as they are eligible to participate
The Secure Assets for Employees Plan Act legislation - based on a proposal by the American Society of Pension Actuaries, the Arlington, Va., trade group - would help small businesses set up retirement plans by eliminating tedious paperwork and non-discrimination test requirements, as well as expensive Pension Benefit Guaranty Corp. insurance premiums.
Introduced by Reps. Nancy Johnson, R-Conn., Earl Pomeroy, D-N.D., and Harris Fawell, R-Ill., the bill would allow small employers to set up simplified plans along the lines of cash balance plans, but would provide employees with the account balance or investment returns - whichever is higher.
Employers can fund the SAFE plans through purchasing individual annuities from insurance companies, or setting up a SAFE trust plan. The plans will be fully funded because employers will pay in each year the amount of retirement benefits earned by employees in that year.
Employers setting up the SAFE plans will be required to use conservative actuarial assumptions, such as a 5% interest rate assumption, to ensure all employees get at least a basic benefit. Employees will receive retirement benefits equal to either 1%, 2% or 3% of pay for each year of employment. Employees participating in the plans can have their money converted into an annuity upon retirement or, if they choose, roll over their cash balance into an individual retirement account.