Closing the nation’s retirement savings gap was a key topic for a panel featuring Indiana’s U.S. Sen. Todd Young and U.S. Secretary of Labor Alexander Acosta on Friday at Indiana State University.
Administrative proposals from the U.S. Department of Labor and federal legislation proposed by Young would enable small- and medium-sized businesses to offer workplace retirement plans similar to 401(k) plans offered to employees of bigger companies.
“Only 14 percent of small businesses now offer retirement plans to employees,” Acosta said.
He said many of the country’s small business owners find it too costly or onerous to offer employees retirement plans, which have to be monitored and accounted and which can pose a risk of lawsuits. Small businesses employ about 47.5 percent of American workers.
Young said there are “approximately 40 million Americans [, nearly a third of private-sector workers,] who work but don’t have access to a retirement security plan at work.
“So for our smaller businesses, the cost and litigation risk of setting up a new plan is often prohibitive for them to allow their employees to save more for their retirement.”
Acosta said the U.S. Department of Labor is in the process, now open for public comment, to allow trade groups or associations of businesses, such as the Indiana Chamber of Commerce, to sponsor an association retirement plan and offer members access to retirement benefits. The associations would be based on geography or specific industry.
The associations would have responsibility for asset management, benefit payments, government and regulatory filings. Small business members could simply join the association retirement plan, Acosta said.
Young introduced the Retirement Security Flexibility Act with Senators Heidi Heitkamp, D-North Dakota, Tom Cotton R-Arkansas, and Cory Booker, D-New Jersey. It supports a pooled employer plan to allow unrelated businesses to form a retirement plan.
Under both Young’s and the Department of Labor’s concepts, employees could jump from company to company that participates in the plan and continue to build retirement savings.
The measures are needed as Social Security’s reserves are projected to be depleted by 2034, according to the 2018 annual report of the Board of Trustees of the Federal Old-Age and Survivors Insurance Trust Fund and Federal Disability Insurance Trust Fund. The report recommends cuts in future benefits.
“Social Security needs to be made sustainable, so future generations can enjoy the benefits of Social Security,” Young said. “It is a popular program. It is an important program. For most Americans, it shouldn’t be their sole source of retirement income. That’s why we are focused on private security and making sure people have access to retirement vehicles at their workplace.”
Acosta said the proposed small business retirement plans provide “an alternative vehicle where, in addition to Social Security, individuals can choose to save more money through private retirement plans.
“For a lot of Americans, putting a little money aside over a lifetime accumulates and can really make a massive difference, a significant difference in the quality of life come retirement,” Acosta said.