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Bipartisan Senate Legislation Would Boost SIMPLE Plans

Two key senators reintroduced legislation to provide greater flexibility for small businesses interested in offering SIMPLE plans as an option for saving for retirement.

Introduced Feb. 4 by Sens. Susan Collins (R-ME) and Mark Warner (D-VA), the SIMPLE Plan Modernization Act (S. 322) would, among other things, increase the contribution limit for SIMPLE plans. According to the senators, increasing the limit would achieve two essential goals:

  • encourage more small business employers to offer a retirement savings benefit to their employees; and
  • allow small business employees to save even more each year on a tax-deferred basis.

More specifically, the senators explain in a press release that the SIMPLE Plan Modernization Act would:

  • Raise the contribution limit for SIMPLE plans from $13,000 to $16,000 for businesses with 1 to 25 employees — halfway between current SIMPLE plans and the traditional 401(k) limit of $19,000 for 2019. The legislation also includes a corresponding increase in the catch-up contribution limit from $3,000 to $4,500.
  • Provide businesses with 26 to 100 employees the option of the higher contribution limits. However, to continue encouraging these employers to transition to 401(k)s when they can do so, the legislation would also increase their SIMPLE plan mandatory employer contribution requirements by one percentage point if they elect the higher limits.
  • Allow for a reasonable transition period for employers that expand beyond 25 employees.
  • Make the limit increases unavailable for employers that have had another DC plan within the past three years. This is to encourage businesses that already have qualified plans to retain them.
  • Modernize SIMPLE plan form filing requirements and modify the transition rules from SIMPLE plans to traditional plans to facilitate and encourage such transitions.

The legislation also directs the Treasury Department to study the use of SIMPLE plans and report to Congress on such use, along with any recommendations.

SIMPLE (Savings Incentive Match Plan for Employees) retirement plans were established by the Small Business Job Protection Act of 1996 to encourage small businesses to provide their employees with retirement plans, subject to certain safe harbor requirements. In general, businesses with 100 or fewer employees may currently create SIMPLE retirement savings accounts for their employees, so long as the employers do not have another employer-sponsored retirement plan.

Collins currently chairs the Senate Special Committee on Aging and often serves as a swing vote on key legislation. Warner is becoming more active in the retirement policy space and currently serves on the Senate Finance Committee, which will have jurisdiction over this legislation. The senators first introducedthe SIMPLE Plan Modernization Act in July 2018.

Meanwhile, Congress does appear to be gearing up for action on retirement security legislation. Collins’ Aging Committee is holding a hearing Feb. 6on innovations and best practices to promote financial security in retirement. The House Ways & Means Committee also is holding a hearing Feb. 6, on improving retirement security for America’s workers.

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