A bipartisan pair of Senators reintroduced legislation that would provide greater flexibility for small businesses to offer and for employees to contribute to SIMPLE plans.
Introduced April 21 by Sens. Susan Collins (R-ME) and Mark Warner (D-VA), the SIMPLE Plan Modernization Act would raise the contribution limit for SIMPLE plans from $13,500 to $16,500. The senators note this would be halfway between current SIMPLE plans and traditional 401(k)s for the smallest businesses (less than 25 employees). There also would be a corresponding increase in the catch-up limit from $3,000 to $4,750.
The legislation also would give businesses with 26 to 100 employees the option of the higher contribution limits. But to continue to encourage them to transition to 401(k)s when they can do so, the bill would increase their SIMPLE plan mandatory employer contribution requirements by one percentage point if they elect the higher limits. The bill also calls for a reasonable transition period for employers that grow beyond 25 employees.
“Increasing access to employer-sponsored retirement plans is one way to improve Americans’ financial security, yet approximately two out of every five Mainers in the private sector lack access to a retirement plan at work,” Collins said in a statement. “The SIMPLE Plan Modernization Act is a win-win proposition that helps small businesses enhance their employee benefits and assists workers with taking steps to save for retirement.”
Additional provisions of the legislation would:
- make the limit increases unavailable if the employer has had another DC plan within the past three years, as a way 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; and
- direct the Treasury Department to study the use of SIMPLE plans and report to Congress on such use, along with any recommendations.
The bill text is not yet available, but it will be posted here once it does become available.
Congress established SIMPLE (Savings Incentive Match Plan for Employees) retirement plans in the Small Business Job Protection Act of 1996 to encourage small businesses to provide their employees with retirement plans. In general, businesses with 100 or fewer employees may create SIMPLE plans for their employees, so long as the employers do not have another employer-sponsored retirement plan.
Employers are required to contribute each year either a matching contribution up to 3% of compensation or a 2% nonelective contribution for each eligible employee. Under the “nonelective” contribution formula, even if an eligible employee doesn’t contribute, that employee must still receive an employer contribution equal to 2% of their compensation up to an annual limit of $290,000 for 2021. In addition, there are no nondiscrimination testing requirements, and an employee is always 100% vested.
Collins and Warner are active in the retirement policy space—Collins has chaired the Senate Special Committee on Aging, and Warner serves on the Senate Finance Committee, which has jurisdiction over this legislation. The senators first introduced the SIMPLE Plan Modernization Act in July 2018.
