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Bipartisan Bill Would Allow Plan Asset Reimbursement for Plan Design Expenses

Legislation

Bipartisan legislation backed by the American Retirement Association would allow the expenses associated with plan design changes to be reimbursed from plan assets.

The Increasing Small Business Retirement Choices Act, introduced April 26 by Sens. Jacky Rosen (D-NV) and Tim Scott (R-SC), would amend existing law to allow small business employers to use retirement plan funds to pay expenses associated with retirement plan design changes, lowering the cost of providing better plans to workers. Currently, employers that offer 401(k) retirement plans and want to consider a plan design change, such as auto-enrollment or auto-escalation, must pay upfront out-of-pocket administrative costs. 

Rosen and Scott are both members of the Senate Special Committee on Aging, the Senate Committee on Small Business and Entrepreneurship and the Senate Health, Education, Labor, and Pensions (HELP) Committee.

“Small businesses make up more than 99 percent of our state’s businesses and employ over half a million Nevadans. This bipartisan legislation will ensure small business workers have access to high-quality retirement plan benefits without facing a cost barrier,” said Rosen. “Removing this bureaucratic red tape and additional cost will make small businesses stronger and provide their workers with the best and most comprehensive retirement plans possible.”

“Retirement planning is often a daunting and complicated process for millions of people concerned about securing the future of their families,” said Scott, Ranking Member of the Senate Special Committee on Aging. “This bill will lighten the burden on workers at small businesses that do not always benefit from the same features of retirement plans under larger companies. Leveling the playing field to maximize benefits for the financial futures of all Americans should be a goal we can all get behind.”

“Innovative plan design features such as automatic enrollment and financial wellness programs have been shown to have a huge impact on American workers’ financial health and retirement security,” said Brian Graff, CEO of the American Retirement Association. “The expanded flexibility to cover the expenses associated with these programs means that more employers—and most particularly small business owners—will now be able to bring those advantages to even more workers.”

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All comments
Kit Gleason
2 weeks 5 hours ago
Tax incentives toward start-up and administration are great, but they completely miss the real reasons small employers don't offer plans. 1) Plan administrative costs such as those targeted in this legislation are FAR less than the cost of providing matching or non-elective contributions for their employees. Employers are far more worried about those costs than administrative ones. And this is despite the fact that they are fully tax-deductible to the employer. 2) These employers typically don't see employees leaving for different jobs because another employer has a retirement plan and they don't. Employees leave because the other employer pays a higher hourly wage. The small business employer is simply responding to what they believe their workers value most. 3) Complexity, complexity, complexity. Understanding retirement plans is hard with even the best partners and the costs of failure to comply can be steep. If the employees aren't begging for it, why put yourself through it? There are enough other things to worry about when running a small business.
Jeffrey Ashendorf
1 month 39 min ago
Do Scott and Rosen really not understand what they’re doing, or do they just think that everyone else is stupid? They’re talking about defined contribution plans — not defined benefit plans. All of the “plan assets” are allocated to participants’ accounts, so using “plan assets” to pay the expenses means that participants are paying the expenses rather than the employer. The plan doesn’t have additional assets that can be used to pay the expenses — unless the employer were to make additional contributions (over and above what it would have contributed), but if it did that, then the employer would still be paying the expenses so nothing would be accomplished. There are only two choices insofar as paying expenses are concerned, and the money comes from the employer either way. The difference is whether the expenses are paid directly by the employer, or are paid indirectly by using money that the employer has contributed to the plan. In the latter case, in a defined contribution plan, the further question is whether the employer or the employees bear the economic cost; it has to be one or the other (or a combination of both) — there is no other alternative since there is no other source of “plan assets.” It’s no different economically than charging plan administrative expenses to participants’ accounts, which is not uncommon at all. The only difference is that plan-design expenses are not administrative expenses, but are the sponsor’s expenses, and so use of plan assets would require a prohibited transaction exemption. That can certainly be done by Congress, but it doesn’t create funds out of thin air — it merely enables plan assets otherwise belonging to participant accounts to be used for the employer’s benefit without engaging in a prohibited transaction. They should call it what it is — requiring employees to pay for plan design changes so that the employer doesn’t have to pay. Advertising it as “the plan” paying, and saying that enables the employer to do right by the employees, is about as disingenuous as it gets.