Senators heard an early success story on July 15 from a small business owner who was able to offer to a retirement plan to his employees for the first time through a pooled employer plan (PEP) arrangement.
Appearing before the Senate Special Committee on Aging, John Iacofano, owner of Iacofano’s Catering in Mount Pleasant, SC, told senators that the creation of PEPs freed him of the administrative burdens and costs of setting up a retirement plan, allowing him to offer a plan to his employees, many of which had never had access to a plan.
The hearing, “Building Wealth and Fostering Independence: Creating Opportunities to Save,” focused on the challenges individuals face when working to achieve long-term financial security and save for a stable retirement. A video of the hearing and witness testimony are available at that link.
Competitive Advantage
During the pandemic, Iacofano explained, his company was able to maintain a workforce from large corporate layoffs, but as corporations began to rehire, they were unable to keep up with the benefits that corporations offered, specifically retirement plans. In one instance, he noted, they even offered an employee 11% more pay, plus success-sharing checks, but the person went back to her former company after it offered to reinstate her benefits.
“My small business attempted many times to implement our own employee retirement plan but were shut down by the excessive fees, along with plan liabilities and administrative burdens my team could not handle,” Iacofano noted.
But after learning about the SECURE Act and the changes Congress made allowing unrelated employers to join together to provide workplace retirement savings options without the costs, administrative burdens and liability attached to sponsoring their own plan, the small business owner noted that, in a matter of months, his company was launching its first ever employee retirement plan.
With a cost of $2,600 per year and the plan provider handling all employee enrollment, legal requirements and administrative work, Iacofano notes that was the “the sole reason we are now able to offer our employees retirement benefits.” Plus, he notes, the low costs allow them to offer a competitive match.
When asked by Sen. Tim Scott (R-SC) what aspects of the SECURE Act were helpful, Iacofano also attributes the elimination of the one-bad-apple rule as a key factor in convincing his company to join the PEP, in addition to helping to reduce the cost burden. “A major one is obviously the $2,600 a year cost to me, broken apart in quarterly payments, which is huge; then you have the administrative and fiduciary liability, which basically is being handled by the plan itself, where with before the new SECURE Act, you had the one-bad-apple part and everybody could be liable in the plan—this got rid of that, which is excellent,” Iacofano explained.
The small business owner also emphasized the importance of the competitive advantage that comes with the ability to offer a retirement plan to his employees. “I will not be competitive if I do not offer retirement; this allows me to not only offer retirement, become competitive, and be able to obtain new team members, it also, due to the low cost, allows me to match. We’ll be matching 100% on the first 3% and 50% on 4% and 5%, which makes me extremely competitive against very large corporations and puts us on the same level,” Iacofano noted.
Other Witnesses
Other witnesses included Thomas Foley, Executive Director of the National Disability Institute; Josie Badger, PhD, Campaign Manager at #IWantToWork; and retirement columnist and author Rodney Brooks.
For his part, Brooks stressed, among other things, the importance of financial literacy and education, and starting to teach young adults and kids about the importance of saving and compound interest.
Brooks also suggested that emerging state-based auto-IRA savings programs are one way to help address what he described as an impending retirement crisis, particularly for low-income and minority families who have very little in savings and do not have access to a retirement plan at work. The retirement columnist further suggested that baby-bonds are another way that can help individuals build savings early in their lives, further noting they would help cut the racial wealth gap in half.
Disability Challenges
Foley and Badger spoke largely about eliminating barriers to economic advancement for people with disabilities, who, they noted, want to work, but often lack the opportunities or ability to navigate the complex benefit programs and work-incentive rules.
Foley urged the passing of the ABLE Age Adjustment Act, which is sponsored by Aging Committee Chairman Sen. Bob Casey (D-PA), who also called for its passage. The legislation seeks to increase the utilization of the ABLE account program by allowing individuals with disabilities that started before age 46 to open ABLE accounts (the current limit is age 26). The Achieving a Better Life Experience (ABLE) Act enacted in 2014 allows states to create tax-advantaged savings programs for eligible people with disabilities to save without losing their federal disability benefits, such as Supplemental Security Income or Medicaid.
“Increasing the number of people with disabilities who can open accounts is a market solution that will strengthen the ABLE program from a fiscal perspective while also allowing older adults who become disabled through accidents, chronic illness or military service to benefit from this tool,” Foley told the senators.
