[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
UNLOCKING SMALL BUSINESS RETIREMENT SECURITY
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
MARCH 27, 2019
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[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 116-013
Available via the GPO Website: www.govinfo.gov
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35-629 WASHINGTON : 2019
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA VELAZQUEZ, New York, Chairwoman
ABBY FINKENAUER, Iowa
JARED GOLDEN, Maine
ANDY KIM, New Jersey
JASON CROW, Colorado
SHARICE DAVIDS, Kansas
JUDY CHU, California
MARC VEASEY, Texas
DWIGHT EVANS, Pennsylvania
BRAD SCHNEIDER, Illinois
ADRIANO ESPAILLAT, New York
ANTONIO DELGADO, New York
CHRISSY HOULAHAN, Pennsylvania
ANGIE CRAIG, Minnesota
STEVE CHABOT, Ohio, Ranking Member
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member
TRENT KELLY, Mississippi
TROY BALDERSON, Ohio
KEVIN HERN, Oklahoma
JIM HAGEDORN, Minnesota
PETE STAUBER, Minnesota
TIM BURCHETT, Tennessee
ROSS SPANO, Florida
JOHN JOYCE, Pennsylvania
Adam Minehardt, Majority Staff Director
Melissa Jung, Majority Deputy Staff Director and Chief Counsel
Kevin Fitzpatrick, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Dwight Evans................................................ 1
Hon. Steve Chabot................................................ 2
WITNESSES
Ms. Martella A. Turner-Joseph, Founding Partner, Joseph & Turner
Consulting Actuaries, LLC, New York, NY, testifying on behalf
of the American Retirement Association......................... 4
Mr. Paul F. Davidson, Director, Product Management, Paychex,
Inc., Rochester, NY............................................ 6
Mr. Greg Gorgone, CFO, Citizant, Inc., Chantilly, Virginia,
testifying on behalf of the U.S. Women's Chamber of Commerce... 7
Mr. Keith Hall, President and Chief Executive Officer, National
Association for the Self-Employed, Washington, DC.............. 9
APPENDIX
Prepared Statements:
Ms. Martella A. Turner-Joseph, Founding Partner, Joseph &
Turner Consulting Actuaries, LLC, New York, NY, testifying
on behalf of the American Retirement Association........... 24
Mr. Paul F. Davidson, Director, Product Management, Paychex,
Inc., Rochester, NY........................................ 31
Mr. Greg Gorgone, CFO, Citizant, Inc., Chantilly, Virginia,
testifying on behalf of the U.S. Women's Chamber of
Commerce................................................... 41
Mr. Keith Hall, President and Chief Executive Officer,
National Association for the Self-Employed, Washington, DC. 47
Questions and Answers for the Record:
Questions from Hon. Troy Balderson to Ms. Martella A. Turner-
Joseph and Answers from Ms. Martella A. Turner-Joseph...... 52
Questions from Hon. Troy Balderson to Mr. Greg Gorgone and
Answers from Mr. Greg Gorgone.............................. 54
Questions from Hon. Troy Balderson to Mr. Keith Hall and
Answers from Mr. Keith Hall................................ 56
Additional Material for the Record:
ACLI - The American Council of Life Insurers................. 58
IRI - Insured Retirement Institute........................... 65
Small Business Council of America............................ 75
UNLOCKING SMALL BUSINESS RETIREMENT SECURITY
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WEDNESDAY, MARCH 27, 2019
House of Representatives,
Committee on Small Business.
Washington, DC.
The committee met, pursuant to call, at 11:31 a.m., in Room
2360, Rayburn House Office Building. Hon. Dwight Evans [vice
chairman of the committee] presiding.
Present: Representatives Finkenauer, Kim, Golden, Davids,
Evans, Schneider, Espaillat, Delgado, Houlahan, Craig, Chabot,
Kelly, Balderson, Hern, Hagedorn, Stauber, Spano and Joyce.
Mr. EVANS. [Presiding] The Committee will come to order.
I want to thank everyone for joining us this morning, and I
want to especially thank the witnesses for being here today.
Whether we are working for small or large businesses, a
not-for-profit, or a sole proprietor, every American deserves
to retire with security and peace of mind. Unfortunately, far
too many Americans are facing a crisis: the inability to fully
retire with dignity in a life after hard work.
Many of today's workers are nowhere close to having enough
saved away to ensure a quality secure retirement. In fact, half
of all American families near retirement have $12,000 or less
in retirement savings, and one-third have less than $5,000
savings for retirement.
What is more, among non-retirees in their 50s and 60s, 1 in
8 lack any retirement savings and less than half of them think
their retirement savings are on track, according to the latest
Report on Economic Well-Being of U.S. Households. Even among
young workers, saving for retirement remains a struggle or even
an afterthought. The high cost of an education has made
retirement readiness more difficult and for some, impossible.
Given that there are nearly 30 million small businesses
supporting 56 million jobs, it is imperative that small firms
have the tools and the resources to set up retirement plans so
business owners and their workers have financial security.
However, when over half of all small businesses do not have a
retirement plan set up, we know that more work needs to be
done.
In addition to serving as the Vice Chair of the Committee--
and I just said to the Ranking Member, no, I am not Chairwoman
Velazquez, but she is the Chair--I serve on the Ways and Means
Committee. Last month, we had a hearing on improving retirement
security where I had the opportunity to talk about the vitality
of this issue with small businesses being able to provide
retirement benefits to their employees, and also explore some
of the obstacles facing small businesses and providing this
benefit.
In my home state of Pennsylvania, we have nearly 1 million
small businesses employing 2.5 million workers, accounting for
46.7 percent of the workforce for the entire state. Small firms
account for 99.6 percent of my state employers. Needless to
say, small businesses are the drivers in our community.
In order for these small businesses to remain competitive
and to continue to be the economic innovative drivers they are,
they must be able to offer substantial benefits to their
employees. One of the barriers for the small firms is the cost
of setting up a plan along with the cost of administering and
maintaining the plan.
Small firms face the ongoing fiduciary duties, such as
reviewing investment, running discrimination tests, all while
trying to run a business. Needless to say, the process can
become burdensome and costly rather quickly. And if the small
employer faces too many challenges, they may ultimately feel
the burden of providing a retirement plan unfortunately
outweighs the benefits. Understanding these challenges can help
us better address the solutions to low participation rates
among small entities. One approach may be to offer tax
incentives to small business owners who choose to sponsor a
plan.
Another way is to increase plan participation to allow
small firms to band together to offer retirement plans, which
could lead to administration savings and reduce the fiduciary
responsibility. And making it easier for employees to
automatically enroll in retirement plans could encourage small
businesses to save for their retirement.
These and other issues merit further discussion. But what
is absolutely clear is we must act soon to help small
businesses, their employees and entrepreneurs plan for their
future. For this reason, we need to make sure that retirement
plans are attractive for small businesses as their retirement
saving is an integral part of our Nation's future.
And that is why we are here today. The hearing will examine
the options for small employers, the benefits and barriers they
face in offering plans and options for expanding coverage. It
will allow the opportunity to discuss the current vehicles that
many small businesses use to provide retirement benefits in
ways which they can improve upon.
With the proper tools, America's small firms can help to
create financial security for themselves and their workers.
With that, I thank each of the witnesses for joining us
today, and I look forward to their testimony.
I would like to yield to the Ranking Member, Mr. Chabot,
for his opening statement.
Mr. CHABOT. Thank you very much, Mr. Chairman. And I know
you will do everything in your power to live up to the high
standards set by Chairwoman Velazquez. And I am sure you are up
to the task.
Planning for the future, preparing for what is ahead, and
creating a roadmap for success are cornerstones for virtually
every small business in America. These phrases guide day-to-day
decision making and help determine long-term strategy. They
also mark the fundamental basics of retirement security for
both small business owners and small business employees across
the nation. Unfortunately, saving for retirement is not only a
challenge for most individual Americans, it has also proven to
be problematic for many small businesses. As a result, some of
the Nation's smallest firms and their employees are sitting on
the sidelines when it comes to saving for the future.
According to the U.S. Department of Labor, 66 percent of
all businesses provide retirement benefit options to their
employees. Unfortunately, that means that nearly one-third of
all private sector workers are not given an opportunity to
participate. Acknowledging the challenges that many Americans
have in saving for the future, President Trump signed an
Executive Order last August to help small businesses reduce
costs and burdens associated with retirement benefits. A key
part of that Executive Order was the expansion of multiple
employer plans that provide individual employers the
opportunity to band together to offer options to their
employees. As we await final guidance on the expansion of this
program, I look forward to today's hearing exploring some of
the challenges facing small businesses as they navigate the
retirement landscape.
Additionally, I am looking forward to hearing from our
witnesses about what Congress can and should do in order to
jumpstart savings. As a larger and larger segment of our
population grows into retirement age and we are living longer,
we must make it a priority to provide small businesses with a
menu of retirement options for their employees.
And again, I want to thank you, Mr. Chair, and I yield
back.
Mr. EVANS. I would like to thank the Ranking Member.
I would like to explain to you the rules. I would like to
take a minute to explain. Each witness gets 5 minutes to
testify and members get 5 minutes for questioning. There is a
lighting system to assist you. The green light comes on when
you begin, and the yellow light means there is 1 minute
remaining. The red light comes on when you are out of time, and
we ask that you stay within the timeframe to the best of your
ability.
To a very good friend of mine, I would like to yield to Mr.
Espaillat from New York to introduce our first witness.
Mr. ESPAILLAT. Thank you, Mr. Chairman. And I want to take
this great opportunity to introduce our first witness, Ms.
Martella A. Joseph. Ms. Joseph is a distinguished and
successful small business owner from my congressional district
in Harlem. Ms. Joseph is a co-founder and partner of Joseph and
Turner Consulting Actuaries, LLC. She is an enrolled actuary
certified by the Joint Board of the Enrollment of Actuaries.
Ms. Joseph has over 25 years of experience in the field of
retirement planning consulting. She specializes in defined
benefit plans and defined contribution plans and she provides
consulting services in the area of planned assigned funding and
administration for a variety of businesses, as well as self-
employed individuals. In fact, Ms. Joseph, your office is just
six blocks away from my Harlem office, and I wanted to take
this opportunity to welcome you to the panel.
Mr. EVANS. Thank you. I am going to introduce the rest of
the panel.
Our second witness is Mr. Paul Davidson. Mr. Davidson is
the director of project management at Paychex, Inc., where he
started the retirement service division with nothing more than
the belief, that savings for retirement should an employee
benefit access to all. Thank you, Mr. Davidson, for overseeing
the retirement plan service division at Paychex, administrating
more than 77,401 plans with a concentration on small plan
market, Paychex simplifies and minimizes the administrative
burden for the employer, allowing businesses to offer employees
state of the art retirement. Welcome, Mr. Davidson.
Our next witness is Mr. Greg Gorgone. Right? Did I get that
correct? Gorgone. I apologize. Mr. Gorgone oversees all
accounting, finance, HR, recruiting, contracting functions, and
support of Citizant's growth and strategic plans. In his role,
he provides strategic counseling, integrated planning, due
diligent leadership in support of business acquisition. During
his tenure, Mr. Gorgone has overseen major recapitalization,
refinancing efforts, and was instrumental in developing the
company's financial management. I would like to welcome you,
Mr. Gorgone.
I would like to yield to our Ranking Member, Mr. Chabot, to
introduce our final witness.
Mr. CHABOT. Thank you, Mr. Chairman.
I would like to introduce Keith Hall. Mr. Hall is the
President and Chief Executive Officer of NASE, the National
Association for the Self-Employed. With 50,000 members, NASE is
one of the nation's leading authorities and resources for the
country's self-employed and microbusinesses. With a membership
consisting of both service-oriented and information-oriented
businesses, NASE offers resources to help the nation's smallest
firms navigate the legal, tax, health, and retirement
challenges that they face. Prior to serving as NASE's top
executive, Mr. Hall was the organization's Chief Operating
Officer, Chief Financial Officer, and its National Tax Advisor.
And we welcome you here this morning, Mr. Hall. Thank you.
Mr. EVANS. Thank you.
Ms. Turner-Joseph, we would like to recognize you for 5
minutes.
STATEMENTS OF MARTELLA A. TURNER-JOSEPH, FOUNDING PARTNER,
JOSEPH & TURNER CONSULTING ACTUARIES, LLC; PAUL F. DAVIDSON,
DIRECTOR, PRODUCT MANAGEMENT PAYCHEX, INC.; GREG GORGONE, CFO,
CITIZANT, INC; KEITH HALL, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, NATIONAL ASSOCIATION FOR THE SELF-EMPLOYED
STATEMENT OF MARTELLA A. TURNER-JOSEPH
Ms. TURNER-JOSEPH. Good morning. I would like to thank
Chairwoman Velazquez, and Ranking Member Chabot, for the
opportunity to speak with you about how to achieve a secure
retirement for small business owners and their employees.
My name is Martella Joseph, and I am an enrolled actuary.
My husband, Eugene Joseph and I are co-founders of Joseph and
Turner Consulting Actuaries, LLC, located in Central Harlem,
New York City. Joseph and Turner Consulting Actuaries, LLC,
provides actuarial, consulting, and plan administrative
services for retirement plans covering thousands of
participants, and we specialize in small business plans. The
average size of our plans is roughly anywhere between 10 to 20
plan participants.
I am a member of the American Retirement Association and
served on the Board of Directors for 12 years. The American
Retirement Association represents more than 25,000 retirement
plan professionals nationwide from actuaries like myself to
consultants, administrators, financial advisors, attorneys, and
accountants. Our members provide consulting and administrative
services to millions of American, savers and retirement plan
sponsors. Our mission is to help American workers strengthen
their retirement security through workplace retirement plans,
particularly for small businesses.
For most Americans, particularly those with moderate
income, the key to a successful retirement is having access to
a workplace retirement plan. These plans particularly benefit
the middle class. Studies have shown that 66 percent of active
participants in 401(k) and other profit sharing plans have an
adjusted gross income of less than $100,000. And of these, more
than half have income of $50,000 or less. Most importantly,
workers earning between $30,000 and $50,000 are 12 times more
likely to save for retirement through payroll deduction in a
workplace retirement plan than on their own in an IRA.
Despite the success of the private retirement system, the
American Retirement Association recognizes that far too many
American workers still lack access to a workplace retirement
plan, particularly those working for small businesses.
Fortunately, there are easy and impactful ways that Congress
can take action to increase the availability of workplace
retirement plans. We strongly urge Congress to enact the
Retirement Enhancement and Savings Act (RESA) as quickly as
possible, along with additional legislation to drive greater
access to workplace retirement plans, as well as enhance the
overall experience for those currently participating in the
system. RESA includes several provisions that when taken
together will make a considerable, easier for small businesses
to adopt and maintain a workplace retirement plan.
It has been far too long since comprehensive retirement
legislation has been enacted. Since the last such legislation,
the Pension Protection Act of 2006, the retirement marketplace
has continued to innovate by offering new and lower cost
retirement-related products, financial wellness tools, and
improved decumulation strategies. However, public policies that
could promote more innovation in the retirement arena have not
kept pace. The passage of RESA would certainly be a step in the
right direction.
In addition to RESA, we also support Chairman Richard
Neal's legislation to further encourage businesses to offer
their employees access to a payroll deduction savings program.
And I see that my time is running out so I will cut this
short by saying that Chairman Neal's Automatic Retirement Plan
program and his Auto IRA program are two pieces of legislation
that will be very, very helpful for small businesses to start
retirement plans that act kind of like training wheels on a
bike where employers can get used to implementing a workplace
retirement saving program with no required contributions.
I will finish by saying, again, thank you for having me
here to discuss this topic, and I will be happy to answer any
questions.
Mr. EVANS. When I go back to the meeting I will make sure I
mention that to Mr. Neal.
Mr. Davidson?
STATEMENT OF PAUL F. DAVIDSON
Mr. DAVIDSON. Congressman Evans, Ranking Member Chabot, and
members of our Committee, good morning, and thank you for the
opportunity to testify today.
My name is Paul Davidson. I am the direct of product
management at Paychex. I have worked in the small business
retirement space for over 30 years and believe retirement
security is a critical issue facing our country. I applaud the
work that Congress and this Committee are doing to try to
address the challenges many small business owners and employees
face when it comes to saving for retirement.
Paychex is a leading provider of payroll, benefits, human
resources, and insurance services. Paychex serves over 650,000
small business payroll clients and pays one out of every 12
American private sector employees. With an average client size
below 20, most of our customers are true ``mom and pop''
businesses.
Paychex now administers more than 80,000 401(k) plans for
small businesses. Last year alone we worked with over 14,000
small businesses to start new retirement plans.
While we are very proud of that accomplishment, to this
day, over 70 percent of Paychex's small business payroll
clients do not offer a retirement plan benefit. As the
Committee well, knows, while the retirement crisis impacts all
types of American employers and employees, it has a
disproportionate impact among small businesses. According to a
Paychex small business survey, more than half of small business
owners do not have a formal retirement savings program at their
business. At the same time, 69 percent of small business owners
in our research declared zero to little financial preparedness
for their retirement.
Our current policies put heavy responsibility on the small
employer if they offer a qualified plan. They can either pay an
extra 3 percent of payroll into the plan to get assurance of a
safe harbor, or they can leave themselves vulnerable to
compliance testing. If they become out of compliance, which is
easy to do with a small number of employees, they often face
large, unexpected and unbudgeted costs.
We believe there are a variety of policy changes that could
be made that would significantly increase the number of small
businesses able to offer retirement plans to their employees.
Congress has begun taking action, and I believe many of the
proposals are steps in the right direction. For example, the
Retirement Enhancement and Savings Act (RESA) makes a variety
of changes that would be helpful to small businesses, such as
an increased tax credit. Senators Portman and Cardin also have
been working on bipartisan legislation, and the Ways and Means
Chairman, Richard Neal, has been a leader in this space. And,
of course, we commend this Committee for making retirement
security a priority and for ensuring that small businesses are
at a critical part of the conversation and the solution. In
addition, much of the good work that is going on in Congress in
the space, we believe there are additional steps that could
have an even more dramatic impact.
When we discuss retirement plans with our small business
customers, the obstacles to our plans really come down to three
areas--complacency, complexity, and cost. It is important that
we do not segregate American workers by the size of the company
they work for. Our existing policies have achieved maximum
penetration in the large and midsize market. Now, we need to
focus on lowering the burden to the employer so all workers,
even those at small companies, can save for dignified
retirement.
I believe you could dramatically increase the number of
small businesses offering retirement plans if you address each
of these head on. Here are a few things I would recommend:
Provide a safe harbor that does not require a match. Why do
we make the employer pay to have his employees safe?
Allow small businesses to outsource some of the fiduciary
responsibility to professionals. Do not make the small business
owners become legal experts.
Make all employees immediately eligible for the plans.
Require automatic enrollment in the plan. This would ensure
wide participation and alleviate the need for our complex
compliance testing today.
These changes would eliminate the need for top-heavy
compliance and coverage testing when the business would know
the cost at each payroll and would not be surprised by cost
driven from a compliance failure. As a result of these changes,
small businesses would be able to offer a plan that was
simpler, less expensive, and more accessible to employees.
In closing, most small businesses that we meet with want to
offer an employee benefit retirement plan. However, once they
consider the cost and the regulatory burdens, many choose not
to move forward. Making it simpler, easier, and less expensive
for small businesses to offer retirement savings programs for
employees is sound public policy and the right thing to do for
American small businesses and workers, allowing all Americans
to save for a dignified retirement.
I thank the Committee for their leadership on small
business retirement issues and for the opportunity to
participate in the discussion today.
Mr. EVANS. Thank you, Mr. Davidson.
Mr. Gorgone, you have 5 minutes.
STATEMENT OF GREG GORGONE
Mr. GORGONE. Vice Chairman Evans, Ranking Member Chabot,
and members of the House Small Business Committee, thank you
for the opportunity to speak today.
Small businesses employ approximately 47.5 percent of all
private sector employees and face a myriad of challenges when
it comes to offering retirement plans. In a study published by
the PEW Charitable Trust in January 2017, they found that 71
percent of small business owners surveyed stated that it was
too expensive to set up a retirement plan, 63 percent stated
they did not have the resources to administer a plan, and 50
percent stated their employees did not want a retirement plan.
While it is certainly true that employees of small
businesses that do not offer retirement plans have retirement
options available in the form of IRAs, the incentives to IRAs
pale in comparison to a 401(k). The current maximum deferral
for an IRA is $6,000 a year, compared to $19,000 a year for a
401(k). Furthermore, employees working for small businesses not
offering a 401(k) are missing out on employer contributions,
which could be as much as 50 percent of the funds set aside for
retirement.
Additionally, participation in an IRA requires a level of
self-discipline requiring employees to manually put funds into
an IRA versus automatic payroll deductions.
Small businesses not offering retirement plans are at a
distinct disadvantage competing for talent. Prospective
employees are more likely to take jobs with firms that offer
retirement plans. The inability to attract a top-notch
workforce stunts growth for small business.
In an August 2017 article published by People Keep, the
author noted that the number of workers for whom retirement
programs is an important benefit is near 70 percent.
My employer, Citizant, was unable to offer any form of
retirement plan to its employees for the first 4 years of
operation. Only when it was generating roughly $4 million of
revenue and had 50 employees could it afford a retirement plan.
Small businesses that offer retirement plans face the
challenge of increasing employee participation. The most often
cited reason for nonparticipation in retirement plan is
financial. Employees cannot absorb the reduced household cash
flow. Many are forced to prioritize the need for health care
over retirement savings. This is especially true with lower
income levels, and due to the complex rules of 401(k)s the
nonparticipation of lower income employees negatively impacts
the ability for higher income employees to defer the maximum
amounts.
Recently, we have noticed a trend amongst the more highly
compensated employees in their 20s and 30s. Faced with a large
student debt payment, this latter group struggles to make ends
meet and cannot service their debt and save for retirement at
the same time. They, too, are missing out on employer
contributions that might be available.
The IRS, in a 2018 private letter ruling, granted a
taxpayer permission to modify its 401(k) to allow it to make
contributions on behalf of an employee provided the employee
was making student loan payments. Under this ruling, employees
can receive retirement contributions just as if they are
participating in the 401(k). This benefit should be provided to
all employees of all companies, small and large.
Other recommendations mentioned by members of the U.S.
Women's Chamber of Commerce in a recent survey to incentivize
and assist small businesses to offer retirement benefits
include allow multiple small businesses to pool their resources
to form and administer shared multi-employer 401(k) plans
managed by experienced 401(k) plan providers; create greater
tax incentives for small businesses to mitigate the cost of
setting up and administering retirement plans; simplify the
requirements and administration and legal reporting
requirements for plans offered by small businesses; reduce the
need for third-party administrators all together; allow self-
directed investment management through vehicles like exchange-
traded funds and promote investment vehicles that do not
contain additional layers of fees which reduce the retirement
savings benefits; incentivize employee savings and use of
retirement plans by providing an easy, flexible, low-cost, low-
fee small business sponsored investment plan.
Thank you for your support of American small businesses. I
encourage you to help incentivize small business owners to
provide strong, affordable retirement benefits for small
business owners and their employees.
Mr. EVANS. Thank you, Mr. Gorgone.
Mr. Hall, you have 5 minutes.
STATEMENT OF KEITH HALL
Mr. HALL. Thank you, Vice Chair Evans, Ranking Member
Chabot, members of the Committee. I also say thank you for
holding this hearing. You can tell by just looking at me
already that this is a topic that I am extremely interested in
because I am getting ready for that as well.
I wish this Committee has pushed this subject when I was
25, rather than I am at the age that I am now. So thank you so
much for doing this. I think this is very important.
We represent the 30 million self-employed business owners
in this country. We estimate that number to be about 50 million
by 2025. To put that in perspective, and I know I am kind of
speaking to the choir here but to put that number in
perspective, the IRS process is about $150 million tax returns
a year. So by 2025, one out of every three of those tax returns
will have a small business attached to it. So helping those
small businesses manage their own businesses help grow the
economy is very important. And I think the retirement issue is
becoming more critical to them.
Now, I hate going last because I end up just saying I agree
with everyone else, so I have a bunch of the same statistics
that other people have talked about so I do not want to bore
you with all those numbers again. But one additional statistic
that I would add is that the AARP--I do not even want to tell
you why I know about the AARP--but the AARP, they say that in
the next 15 years that about 18 percent, one in five retirees
will retire with more debt than savings. And that hurts my
heart. I wish there had been someone like us, you know,
grabbing the back of my neck when I was 25, telling me to start
saving. And I think that is what we are here to do. To be
honest, I struggle a little bit with what we can do because I
do believe in my heart at some point people just have to do it.
You have got to start putting money away for savings. I hate
showing a problem without offering some solutions, so I do have
three things that I know I want to concentrate on, and I would
ask you to concentrate on them as well.
Number one is just awareness. This hearing is a great first
step. Getting people to be aware that you are not always going
to have the job you have. You need to put some money aside. If
you believe the Social Security System is going to be available
for you when it is your time, some of the younger people in the
room, I worry about that as well. So providing these surveys,
the AARP survey, the Pugh Charitable Trust Survey, lots of
people are doing surveys. The more information we can put out
there I think the better. I think that is a critical first
step. So thank you for this part.
The second thing is education. And I think this is where
this Committee, where you guys, where people like me who work
with associations of small business people can come in to play
and that is education. Teaching people what they need to put
away. How they need to put it away. I think we can bring some
pressure or encouragement, whichever word we want to use, on
the Small Business Administration, Small Business Development
Centers, local universities to do seminars, webinars, encourage
them to add this topic to their important list of things that
people need to know about. Now, awareness and education, those
kind of all fee good but, you know, what does that mean I do on
Thursday morning? That is a little more difficult.
The third thing is kind of what you have heard from some
other members here, and that is concentrate on simplifying the
options for small business. I think everyone agrees that one of
the big hurdles that small businesses face are the cost of
implementing a plan. If we can help them with multiple employer
plans, reduce the cost, you can imagine a nationwide or a
statewide plan that small businesses could join that have joint
investment options, joint choices, the fees could be lower. If
they could then add their five employees to someone else's five
employees, I think there are lots of creative people out there
that can put together that concept to make a difference for
retirement plan options. I think adding some of the things that
Paul had talked about, reducing some of the Safe Harbor
requirements, reducing some of those matching requirements so
that that small business owner who just has five employees,
that they want to help save for retirement but really cannot
afford a profit sharing match or a 3 percent match, give them
an opportunity to put the plan in place without some of those
extra mandates. I think there are lots of options.
So I think awareness, education, and then making it simple
always, I think that is where we really need to put all of our
efforts.
And thanks again for allowing me to be here. Thanks for
raising this issue to the top, and I appreciate what you guys
do. So thank you.
Mr. EVANS. Thank you, Mr. Hall.
I know that the Chairwoman, if she was here, she would
definitely tell you that she gives you kudos and all of you for
what you have said. So I know that she felt very strongly about
this hearing and the importance of this hearing.
Mr. Gorgone, last month I met with members of the
Pennsylvania Small Business Center. One of the concerns they
brought to my attention was that young entrepreneurs are facing
great difficulties starting businesses due to student loan
debt. As a small business owner, I know you care deeply about
your employees and want to make sure they take every step to
ensure a quality retirement for them. However, many young
workers are faced with the choice of saving for retirement or
paying off student debt. Can you, and I heard in your
testimony, highlight some of the steps Congress can take? And
can you expand on these that will address the challenges of
young workers? Mr. Gorgone?
Mr. GORGONE. Thank you, Vice Chairman.
I think the number one thing that I would like to see
Congress do to help the person paying off student debts is just
to give them the opportunity to participate in a 401(k) without
them personally having to put money into it. Allow an employer
to match the amount that they pay for their student loan as if
it was a 401(k) contribution. Allow the employer to match that
amount up to their internal 401(k) plan into a 401(k) for that
employee. It gives them something which is better than nothing.
Beyond that I think there are other areas that we can research
and get back to you on through the Women's Chamber of Commerce.
I do not have any other fresh ideas right now.
Mr. EVANS. Well, I want you to hold your thought because I
am going to go to you and to Ms. Turner-Joseph. I feel that it
is our job to do what we can do to help small businesses be
competitive. A large part of remaining competitive is being
able to attract talent and the ability to offer substantial
benefits is critical. To both of you, in terms of recruiting
and retaining employees, do you find that having a retirement
plan is something that employees consider when choosing where
to work? I will start with you.
Mr. GORGONE. I think the question to that is an absolute
yes. We have seen it in the studies where 70 percent of the
workforce believe retirement is an important benefit.
Fortunately, my company does offer a retirement plan, but we
see people making choices between how good is your retirement
plan versus how good is somebody else I may be talking to. You
offer a 3 percent match. They might offer a 5 percent match. So
retirement benefits are a crucial part of the equation when
prospective employees are making decisions of where to work.
Mr. EVANS. Ms. Turner-Joseph?
Ms. TURNER-JOSEPH. Thank you, Mr. Chairman.
If I may, I would like to go back to the question that you
asked about student loans and those who are having problems
paying off student loans as well as saving under the retirement
program. I think one thing that could be added, I know there is
legislation out there pertaining to having plan participants
get a matching contribution on their student loan and I think
that is a wonderful move. But what you can do also to motivate
employers to want to participate in this program is allow the
student loans that are being matched to be considered in the
testing for the nondiscrimination rules for the elective
deferrals. And also have the matching contributions being
tested in the test for matched contributions. That will be a
big incentive for employers to want to participate in this
program because they are providing benefits for their plan
participants and also it is helping the plan, and I think that
is a good exchange.
Do I have time to answer? Okay.
As far as whether or not employees look at retirement
benefits when they are making decisions about employment, yes,
the retirement program is one of the things that employers use
to attract the best out there as far as available employees and
the employees do look at pension benefits when they are
comparing employers as to where to work.
Mr. EVANS. Thank you. My time has expired. I am going to
yield to the Ranking Member, Mr. Chabot, who is recognized for
5 minutes.
Mr. CHABOT. Thank you very much, Mr. Chairman.
Mr. Hall, I will begin with you if I can. I briefly
mentioned early on President Trump signed an executive order
last August that aims to expand retirement benefit options to
small businesses, and in your written testimony you mentioned
it several times. And since you gave your written testimony I
do not think you went into it here. But if you could share with
us why you believe that that expansion, the multiple employer
plans could actually make a difference if it were implemented.
Mr. HALL. Thank you for the question.
The main reason I believe that it could certainly make a
difference is because of the cost of entering into the field of
play. I think many small businesses, and I think T. Rowe Price
actually in their survey mentioned that less than half of self-
employed people currently are saving for retirement. And if a
self-employed person has four employees, they are not saving
for employment. They are probably not offering a plan for their
employees either. And mostly the reason they are not is because
it is expensive to have a plan. It is complicated to have a
plan. They have to worry about testing. They have to worry
about compensation limits, safe harbors, and it just gets
expensive. And I think the multiple employer plan has an
opportunity to reduce that cost. I am certainly not creative
enough to figure out the plan but the thing I believe I would
love to see is a plan sponsored by a state, by T. Rowe Price,
maybe joint partnerships, some plan. And there is a nice model
out there with association group health plans from the past
that a small employer who has got five employees can just say I
want to be part of this 401(k) plan and sign up. Costs are
reduced. They have got lawyers in place. They have got testers
in place. They have got actuaries. They have got CPAs. Their
employees can just sign a piece of paper and say start
withholding 4 percent of my pay, send it to Paychex. They get
reduced tax for it and they are starting saving for their
retirement. And now the small business owner has adopted a
plan, they are saving for themselves, they are helping their
employees save, which I think is what we are trying to get
accomplished here. And if the MEPs can reduce that cost, then
by definition it has already made a tremendous difference.
Mr. CHABOT. Okay. Thank you very much.
Ms. Turner-Joseph, if I could go to you next. What would
you say is the number one retirement issue that small
businesses come to you with, and what do you tell them when
they come to you with that problem?
Ms. TURNER-JOSEPH. The number one issue that employers
present to me is the fear of sponsoring a plan and the
responsibility that comes with sponsoring a plan. Because of
the job that I do, I am able to alleviate that fear for them
most of our clients are small and we do a lot of handholding.
So, we walk them through what they have to do, what
responsibility we are able to take off their shoulders and do
it for them. And once we have completed the job, we sit them
down and explain to them what is being done. So, education and
understanding the process is half the problem. And having
someone with them, which I consider myself with them, to walk
them through the process and let them realize that I have got
their back, so to speak, it makes it a lot easier.
Mr. CHABOT. Thank you very much.
Mr. Gorgone, let me go to you next, if I can.
As was mentioned here by somebody before, Americans tend to
oftentimes now--in the past maybe they graduated or whatever,
worked for this company and worked with them or maybe two
companies their entire life. Nowadays, people tend to move
around and work for various companies and entities, and
oftentimes, they have got a retirement plan there or they have
set up an IRA and then their spouse has an IRA and then maybe
when ROTH IRAs came they are thinking about the tax
consequences. They have got all these different things. And
what would you recommend or what are people doing nowadays when
they have all these different things to figure out, you know,
well, I am 65 or I am going to be 70, and if I do not start
taking certain stuff by then there are penalties. You know,
what do you recommend people do, and is there anything we can
do to simplify this whole process for them?
Mr. GORGONE. I think one of the things I would recommend
that people do is as they change jobs throughout their careers
they continue to move their retirement with them. When you have
8, 9, 10 different retirement plans, tough to keep track of
what you have got and where it is and how much it is.
Mr. CHABOT. Can they combine them into one entity at this
point?
Mr. GORGONE. You can roll them over from one employer to
another.
Mr. CHABOT. Even the IRAs and things which they have set up
individually or not?
Mr. GORGONE. I would have to defer to a tax expert to
answer that question, but I believe an IRA can be rolled over.
Mr. CHABOT. I see some nodding of heads, both in the
audience and here. So I am going to----
Mr. GORGONE. So the key to the second part of your question
is knowing how much they have available to them and then
planning the rest of their lifetime, how much money, how long
is that going to last them to start taking out the withdrawals
at the appropriate times in their retirement age, but the key
is knowing how much you have got and having it in one place
goes a long way to getting there.
Mr. CHABOT. As Mr. Hall mentioned before, as I get older
these issues I am raising are becoming less theoretical and
more personal.
So anyway, I yield back, Mr. Chairman. Thank you.
Mr. EVANS. Thank you, Mr. Chabot.
The next person is the Chairwoman of the Subcommittee on
Rural Development, Agriculture, and Trade and Entrepreneurship,
Ms. Finkenauer.
Mr. FINKENAUER. Thank you very much, Mr. Chair. And thank
you to our Ranking Member and our great guests here today.
This is an incredibly important topic, and I know Mr.
Chabot talked about how this is personal for him, and I have
got to tell you, as a young woman who got elected to Congress
at 29 and now I am 30, I have a lot of friends that I grew up
with in Iowa where this is very personal to them as well.
The idea and the discussion around retirement right now,
especially when talking about young folks and student loan debt
is one of, I believe, one of the biggest challenges we are
going to have here in the next 20 years. And I am somebody,
again, who is sitting there with, you know, about $20,000 of
student loans left. I am not alone. In Iowa, a lot of us were
first generation college graduates so our parents worked really
hard, helped get us to college but could not pay for it all so,
again, sitting there with the debt on top of it and I have got
friends that, you know, graduated from college and then took a
job possibly at a nonprofit where they are making about $35,000
a year. Incredible, amazing, fulfilling work, but again, the
wages in my state in particular, are some of the lowest in the
country. Our minimum wage is still $7.25. So you look at Iowa
in particular and the young folks that I have been talking to,
friends, family, and the idea of, okay, well, now we need you
to put more into retirement when they are just trying to figure
out how they are going to pay their rent, it is a huge issue.
And so thank you for the work that you have done on this.
And one of the things that I keep trying to talk to, you
know, again, folks in Iowa, but also here about how we deal
with some of the challenges that young folks are facing and
also in states like Iowa where we are trying to keep folks in
my state and also bring them back home is creating
opportunities for young people to then start businesses and
create jobs in some of our smaller communities. But, again, one
of the biggest hurdles is always going to be how are you going
to save for retirement on top of it if you do not have an
employer match?
So do you have any ideas? I know Ms. Turner and Mr.
Gorgone, I know obviously student loan debt, this is something
you guys have looked into a great deal, and Mr. Hall and Mr.
Davidson as well, but what can we be doing to better help our
small businesses and our entrepreneurs make sure that they can
start their businesses and then at the same time not have to
worry about their future right away? I know one of the things
that has been talked about before, possibly a safe harbor for
very small businesses to have 401(k)s, to have lower startup
costs, or what are your thoughts on that? Ms. Turner? Oh, it is
Ms. Turner-Joseph, I apologize. I just saw the top part of your
name.
Ms. TURNER-JOSEPH. One of the things that can be done, and
I am happy that you brought up not-for-profit because that is a
group of employers that do not have a lot of money. They want
to set up something for the employees to be able to save for
retirement and the way the rules are set right now, it is not
an easy task. Chairman Neal's bills create the Auto IRA and the
Auto 401(k) plan. Those plans are plans that are structured
such that a not-for-profit or other lean employer can sponsor a
401(k) plan. No employer contributions will be needed, and some
of the rules will be relaxed so that employees can make elected
deferrals under the plan without the employer having to go
through all of the testing that other employers have to go
through.
I think something like that is excellent, especially for
not-for-profits who will not be able to make employer
contributions. It gives the employees a chance to save. And it
is also excellent for businesses who are a little timid about
getting into the retirement plan market. This is something like
training wheels for bicycles. We can go slowly and allow the
employees to make elected deferrals. And as time passes and the
business grows, then the business can make employer
contributions.
Mr. FINKENAUER. Mr. Gorgone or Mr. Hall or Mr. Davidson?
Mr. GORGONE. I would just like to add to what Ms. Turner-
Joseph said about the auto enroll. There is a little bit of Big
Brother connotation with those words. But at Citizant, we were
at about 56 percent participation across our workforce last
year. We implemented a new 401(k) plan at the beginning of this
year. We implemented an auto enroll giving people the
opportunity to opt out if they wanted to, and our participation
went from 56 to 90 percent. And about 60 percent of our
workforce, okay, maybe 40 percent of our workforce makes less
than $35,000. So, and those folk were not participating in the
plan. So us taking the action to enroll them in the plan and
giving them--we have a 3 percent match--giving them the free
money that is found with employer match, those people stayed in
the plan and have not opted out.
Mr. FINKENAUER. Thank you. And I believe I ran out of time,
so I yield back and I am very grateful.
Mr. EVANS. Mr. Hall?
Mr. HALL. I was just going to add----
Mr. FINKENAUER. Thank you.
Mr. HALL.--it still comes back to cost. I think the thing
we can help most with the smaller businesses, if any of these
ideas we come up with, whether it is reducing safe harbors,
what the multiple employer plans would look like from a cost
standpoint, that is where we can make a difference for them.
Because I think the right advice that someone at my age would
give to someone at your age is do not concentrate so much on
how much you have to do this year or doing the max this year.
Do not worry so much about how much. Just do something. Get
this started. Let it be part of your habit for you as the
business owner and for your employees. Just get started. Lowest
cost level, get started, then grow with it.
Mr. DAVIDSON. If we are going over then I do have a couple
points.
Mr. EVANS. I have to thank the lady. Thank you.
Mr. DAVIDSON. Thank you. So I think there are three points.
Two around the individual participants, and that is, as was
discussed earlier, to help them, to allow the student loan
payments to be matched in the 401(k). That helps everybody. But
there is another set of the population. As we know, I think the
statistic is 40 percent of Americans do not have $400 in
savings. So since the 401(k) has been our most successful
saving scheme ever in our history, why do we not allow
employees to have more access to that? So why do we not have a
rule that they can take out 10 percent or 25 percent for
immediate needs?
And then the third part of the question is to the
employers, how to make it easier for them. I second what Mr.
Hall said. It is about relieving them from the responsibility
and offering a plan, just make it easier for them to open it up
so all the employees can save. And I think those three things
could make a dramatic difference.
Mr. FINKENAUER. Thank you all. I really appreciate it.
Thank you.
Mr. EVANS. The gentleman from the great state of Minnesota,
Mr. Hagedorn.
Mr. HAGEDORN. The great state of Minnesota. You are
correct. Thank you, sir. I appreciate the Chairman's
indulgence. Ranking Member, staff, everyone. Thanks to the
witnesses.
I think our ranking republican member is on to something,
and the concept of portable benefits. Why are we always putting
the onus on small business and others to create some corporate-
type structure or benefits when we have a lot of people mobile
in the workforce moving from job to job, not always staying
with one company at a time? Obviously, corporations that have a
lot of money to put things together, big businesses can offer
incentives that sometimes smaller businesses cannot. Hard to
compete with that. But perhaps if we had more, the concept of
portable benefits where you take your retirement program with
you, into your job easily invested by the small business
wherever they land, health benefits, everything. I think that
is what we need to move to or look to, especially for folks in
the small business community. Does anyone have any thoughts to
that? Are there regulatory impediments to that? Tax changes
that need to be made? I will open it up to Mr. Hall and then we
will go down this way.
Mr. HALL. Well, I think it is a unique time for employment.
The thing that I get worried about when I think about changing
generations, as people have moved around more, the people that
we are struggling with now, those that say 18 percent of the
retirees in the next 15 years are going to have more income
than debt, a lot of those people were the ones that had a job
for 30 years or 40 years. If those people did not meet the need
then, we need to make sure we are encouraging young people now,
even if they are moving from job to job. And the ability to
maintain a ROTH IRA, a traditional IRA, roll those into another
plan, all those things are available today. So I do not see the
impediment to those. What I still want the conversation to be
about is getting more people aware of their future and
recognizing that they need to start doing something now. And
then the support for small business is giving some of them the
options without burdening all the cost, as your point is, to
not burden small business with the cost for everyone else, but
allow them to put a plan in place with minimal cost.
Mr. HAGEDORN. Anyone else?
Mr. GORGONE. I think one of the challenges that we would
face is employees moving from a large organization that has
really great benefits to a smaller organization that helps
start up a small business. The idea of those benefits being
portable would create some sort of challenge for the small
business to continue to honor a commitment from a benefit that
the individual had, unless I am misunderstanding you.
Mr. HAGEDORN. Yeah. I am talking about people having more
individual benefits. It could be a company or some sort of plan
put together for individuals to basically latch on to and then
they take that from job to job. I am not talking about taking
benefits from some company and moving them over to another.
Mr. GORGONE. The one thing I would do there is
significantly increase the income deferrals of IRAs.
Mr. EVANS. I agree with that.
Mr. GORGONE. Make an IRA equivalent to a 401(k). The
employee can do it on their own. There is no employer match,
but that is okay if you are going to do a 401(k) with a safe
harbor of no match. There is no harm or foul. It is the same
plan. But it at least gives the individual the opportunity to
save at the same levels of a 401(k).
Mr. DAVIDSON. I agree with your point. I think there is one
clarification I make. What we see is people with large
balances, they make sure it gets rolled over. They do not
forget their $100,000. The ones that have a smaller balance,
those are the ones that need help, and unfortunately, our
financial system today, there is not a lot of people chasing
around to try to get a $10,000 or $15,000 contribution. And
that is right when the balance is beginning to grow and it can
begin compounding. So I think the easier we can make it for
those small balances to move would make a big difference.
Ms. TURNER-JOSEPH. The pieces that are needed to have
portability are already in place. Unfortunately, plan
participants have to be proactive when they leave an employer
to make sure that they take their account balances with them.
Now, under the law you cannot just roll any IRA amount into a
qualified plan. The easiest IRA amount to roll into a qualified
plan is if you use a conduit IRA, which is an IRA that is set
up specifically to take in pension assets. Some plans take
ordinary IRAs, but most plans do not. So, if you want the
opportunity to move that from one plan to the other, then the
plan participants have to be educated that when we quit, we
move the monies to a conduit IRA. And a conduit IRA, you can
comingle 10 different plan assets and it does not matter. And
then you can move that back into a qualified plan if you want
to have your money travel with you. So, it is there. Plan
participants just have to be educated as to how to use it. And
unfortunately, sometimes that is lacking.
Mr. HAGEDORN. Very good. I see my time is up. I would agree
with you though. Some of these amounts that you can maybe
deposit into accounts each year, some of the tax implications,
and I do not use this word lightly, need to be liberalized as
far as I am concerned.
Mr. EVANS. Right in the Midwest, the great state of Kansas,
Ms. Davids.
Ms. DAVIDS. Thank you, Chairman Evans. And thank you to
everyone who came here to testify today. I appreciate it.
So the first thing I want to start off--actually, I really
appreciate the last conversation that we were just having. I
would love to hear a little bit more. Mr. Hall, you had
actually mentioned earlier educating folks and then we ended
with Ms. Turner-Joseph just talking about that a few minutes
ago. Can you talk a little bit about what educating, when you
think about it, what it looks like? And I am going to, somehow
the two of you have things that are both very pertinent to what
I am curious about here. In the graphs that you provided, Ms.
Turner-Joseph, on participation and in 401(k) plans, it looks
like if you aggregated the under $50,000 and then the under
$100,000 plan participants, it looks like there is a pretty
decent amount of participation. It is 34 percent and 32
percent, respectively, and then it drops off significantly as
folks' income, annual income increases. So I am curious, when
we think about what educating folks looks like, Mr. Hall, is it
just plan participation? Is it some of what got brought up last
time about making sure that people continue to take their plans
with them as we see more of a robust kind of mobile economy?
Mr. HALL. Well, I think there are two pieces of education
in this conversation. The one that I believe is important is a
broader education concept mainly for people who are not
involved in retirement savings now. Most of the surveys we have
talked about, look at from either side of the discussion, most
of them point to about half of the people are not saving for
retirement today. And then whether they are saving the right
amount, whether they are going to have the right amount, those
are all complicated discussions. But when I think of education,
I think of social media. I think of this hearing. I think of
news outlets, the Small Business Administration, just a matter
of focus on retirement as a concept so that the normal small
business owner in Iowa or Kansas is aware that they are going
to be 65 one day. And I think, I know it was when I was 30, but
when you are 30, you do not think you are ever going to be 65.
And then you are 65 before you realize it. And I think just the
awareness of the plan, the structure, what is going to happen,
how things change, so that you then start looking at options.
And I will defer, but there is also a second piece of
education, and that is for people that are involved in a plan,
recognizing that this is available to you, you need to maximize
your contribution because the company is going to match it for
you. And then when you do leave, it is portable. You can roll
it over. So there is education for those that are involved
already, and then the bigger role, we need everyone involved in
putting money away for their own future.
Ms. DAVIDS. And then the follow up I have to that is what
about educating--so I am thinking about both the employees of
small businesses and also the small business owners themselves.
You mentioned Small Business Development Centers I think when
you were doing your testimony. How are you looking at getting
the small businesses educated as not just saving for retirement
for themselves, but also using that to attract top talent
because we know that small businesses are some of the folks who
are worried about things, like pay and how they are going to
attract top talent to their companies?
Mr. HALL. And I think it is a big problem. Because I think,
again, you go through the numbers. About one in three tax
returns are going to have a small business attached to them.
That still leaves two-thirds of the people that work for
someone else. But of that two-thirds, half of those people work
for a small business. I mean, it is the same people, right, but
all those work for small business. And I believe with
technology, as the world is getting smaller, as people are
working from home, I think we are going to find that the
average size employee number, the average size of a business is
going to fall. I think we are going to have companies that can
do global operations, global fulfillment, global servicing with
five people, none of them who live in the same state. And those
are the types of companies that have difficulty in finding a
plan because now they have got just a few number of people. The
highly compensated testing is difficult because they just have
a few. Safe Harbor is difficult. So now it becomes more
expensive. So now how do we do that plan and maintain low cost?
Ms. DAVIDS. Thank you. Thank you, Mr. Chair.
Mr. GOLDEN. Thank you very much. I will now recognize
myself for 5 minutes. This is my first action as Chair of this
hearing.
I wanted to ask Mr. Davidson, I think you touched upon a
little bit talking about retirement enhancement saving
provision and startup credit, which was designed to help small
employers to set up retirement plans for their workers,
currently capped at $500. I wanted to ask, how much does $500
pay for, and how common is it for an employer to dismiss it
thinking that it is just not worth it to their business or to
their employee?
Mr. DAVIDSON. That is a great question. Thank you. And I
would hate to ever say that $500 is meaningless. But you are
right. I think it is discounted when they are trying to decide
whether to start up a plan or not just because the cost and the
long-term commitment you are making goes way beyond the $500.
So while I certainly encourage any types of tax credits to help
employers start a new plan I favor, but I think it has to be
met with lowering the obligations that they have ongoing to
make it really viable for the small employer.
Mr. GOLDEN. Understood. Thank you.
Just out of curiosity, what level of tax credit would it
take for them to think? I mean, what would you have to raise
that cap to for someone to instinctually think, well, that
sounds like a good deal?
Mr. DAVIDSON. From what we do, our lowest price is $85 a
month. And it can go up to, depending on what your functions
and features are, $150 a month. So does that put it in
perspective the $500 for you? Yeah. So I think if you could
raise that it would probably get more people's attention.
Mr. GOLDEN. Thank you.
For anyone on the panel, and if there is time, each one of
you could take it or you can just pick and choose amongst
yourselves. Simple 401(k) SEP and other types of plans have
strict and often complex rules depending on certain factors
like the employee count or contribution limit. For example,
simple 401(k) is only available to small companies with less
than 100 employees. So I wanted to give you all an opportunity
to talk about whether or not there are any changes that could
be made to these types of plans to modernize and update them
for workforces today.
Mr. DAVIDSON. I guess I will start. There are a couple
points I would like to make. One, there are different types of
retirement plans. SEP, so forth. But I think we talked about
recruiting earlier. The 401(k) has a brand, for lack of a
better word. And while people may not understand the
intricacies of it, everybody knows it is a good thing and they
should have it. So when you are doing your recruiting and you
have your posting out on Indeed and you say you have a SEP or
something, it marks you as a second level firm. I do not think
it helps you in that. So I think rightly or wrongly, I think
some of the different plans are not viewed as favorably.
And to me, the ideal plan would be keep it as the 401(k)
but alleviate the fact that the employer has so much
responsibility and cost. Make it easier so the employer wants
to offer it to his employee. Make it easier for him to offer it
to his employer so everybody gets a chance to save. And that to
me would be the ideal situation.
Ms. TURNER-JOSEPH. I agree with Mr. Davidson that 401(k) is
a brand. And if you are looking to expand coverage, you
probably want to use that brand. Folks know about it, and so
keep it there. What I would love to see is some changes that
would allow small businesses to sponsor a 401(k) plan without
some of the burdens that come with the legislation in terms of
keeping the plan in compliance. If we could, for example, I
keep going back to it because it is one of the things that in
my work, I have met employers who would love to do a 401(k).
They just cannot afford to do employer contributions. So, if
something would be there, and it is in bills, we just need to
get it passed, where an employer can sponsor deferral only
401(k), as a starter I think that would be very helpful.
Mr. HALL. I totally agree. Again, going last, you have to
just say I agree. But I think there are plenty of options out
there. I think we talk occasionally about increasing limits. I
think increasing the IRA limit, I would be in favor of that
also. But I do not think increasing the limits is where the
real problem is. It is getting people in. Doing the lowest
contributions is where we need to start.
Mr. GOLDEN. All right. Thank you very much. I will yield
back 5 seconds.
And I will go ahead and recognize the gentleman from New
Jersey, Congressman Kim, Chairman of the Subcommittee on
Economic Growth, Tax, and Capital Access.
Mr. KIM. Great. Thank you so much for coming. This has been
incredibly helpful for me to understand. My district in New
Jersey, Burlington County and Ocean County, a lot of retirement
communities there, especially along other Jersey Shore. This
comes up a lot, and it is also very much a small business
district. A lot of small businesses from the Delaware River to
the Jersey Shore. So a lot of what you are talking about really
resonates with me. And it has been helpful. I mean, I think,
when I think through it, you know, Mr. Hall, I thought your
comments there just, you know, really simplified just trying to
build that habit of getting people to really just start up,
even if it is at a lower amount but just build that habit. And
I think what you said about awareness, education, and
simplifying was really helpful on that front.
And Mr. Davidson, I think I would like to just build off of
some of the points you just made, both you and Ms. Turner-
Joseph. I would love to hear a little bit more about some of
those burdens about the 401(k). You know, Ms. Turner-Joseph,
you were talking about the employer contributions but if you
can kind of just enlighten me with just some of the other
issues that are out there if they were to try to set up.
Ms. TURNER-JOSEPH. Some of the issues that small businesses
have in terms of setting up the plan apart from the
contribution is the actual cost of maintaining the plan. There
are various nondiscrimination tests that have to be done with a
plan. There are rules that the plan has to meet in terms of
filing paperwork. And you know, to do most of that they are not
experts themselves, the employers, and so they need help from
outside experts which is why they hire people like myself to
assist in maintaining the plan and doing all of the
recordkeeping, and other work required for properly maintaining
a plan. So that cost is something that an employer who is just
starting out may want to shy away from.
Mr. KIM. No, that is helpful.
Mr. Davidson?
Mr. DAVIDSON. Yeah. I think of it in two ways. For the
small employer there are kind of two choices today. You can
either go the Safe Harbor, which is basically 3 percent of your
payroll, which can be a big cost just so your employees can
save. The other side you go without making a mandatory
contribution but you are subjected to annual compliance
testing. And when you are a small employer, one employee
leaving can throw you out of compliance and all of a sudden you
can be hit with a big bill, which is unbudgeted, unexpected.
And many small businesses do not want to take that risk. They
were planning on that money for a new truck or a new oven or
hiring a new employee and all of a sudden they get a surprise
bill from us. It is not a welcome happenstance.
So if we can take that requirement away, and I would say
the other part is the fiduciary responsibility. If we allow
them to outsource the fiduciary responsibility, my experience
is most employers want their employees to save. They want their
employees to do well. They just, when they weigh the cost, it
is the cost of the new truck or sending their daughter to
college, and sometimes retirement plans fall second. So if we
can alleviate that I think we can see the vast majority of
American workers saving.
Mr. KIM. That is helpful.
Mr. Davidson, I want to return to something you said
earlier in response to a question. You had cited this statistic
that I often use which is that 40 percent of Americans cannot
handle a $400 emergency.
Mr. DAVIDSON. Right.
Mr. KIM. And something that you said in response to that
was about allowing employee access to the 401(k) without
penalty. Can you give me a little bit more detail on how that
would help alleviate some of the concerns with people who are
living with that fragility in life?
Mr. DAVIDSON. Sure. So in my perfect world, I would like to
see it easier for the employer to offer a plan, but he offers
it, or she offers it with automatic enrollment. In other words,
everybody, first day, we sign them up for 3 percent
contribution in. Now, they have an option. We give them 60
days, or 90 days, or however long that they can get out of it,
but you try to start them immediately on that and you get them
in the habit of doing the savings. And then, the American
public has different needs. I think a lot of them will not
touch it until retirement, and that is what you want. Some may
need it to pay their college loans back, or those who really
cannot get to work tomorrow because the car needs new tires.
And if we can get all those people saving and we could have
some kind of a rule that you could take 25 percent out of your
plan every 3 years or something, I think those that are at the
lowest incomes would be more likely to let that 3 percent grow
knowing it could help them. And it would also alleviate them
having to go find the money to get those new tires to get the
car to work tomorrow.
Mr. KIM. Yeah. No, I appreciate that. Thank you so much for
helping enlighten me. And I look forward to staying in touch
and figuring out how we can implement some of these.
I will yield back the balance of my time.
Mr. GOLDEN. With that I would ask if Mr. Kim has an
interest in asking an additional round. Because it would be
that time. If you had more questions you can go ahead and ask
them.
Mr. KIM. Well, I guess just my last question I guess would
be, you know, with where we were just going off of with the
401s, you know, I would like to get just sort of the thoughts
of the other two participants, Mr. Gorgone and Mr. Hall. You
know, if they share some of those same recommendations, if
there are any concerns or thoughts? I mean, I am intrigued by
what Mr. Davidson said about allowing employees to access the
401(k), but obviously, I will also have some concerns about
people going into that too much. You know, so I know there has
got to be sort of a balance there. But I am intrigued by just
sort of the assessments of the other two.
Mr. HALL. Well, I do agree with it. I think, again, it is
an interesting time. I would say before I knew that there were
three states right now that are already doing it I would say
you cannot make people save. They need to want to save. They
need to know the need to save. Now, I am very interested to see
how those states work because that might be something to
consider because, you know, if my mom were standing here she
would tell me she knows what is good for me and would tell me
what to do and I would probably do what she said. But at some
point it still comes back to education. I think people need to
be aware. I think anybody who is a Harry Potter fan, I think
Albus Dumbledore said it is unreasonable to expect a young man
to know what it is like to be an old man, but it is
unforgiveable for an old man to forget what it is like to be a
young man. And I think when you are young, I remember not
thinking I needed to worry about that topic. So I agree with
the concern on over saving. I certainly do not want them to put
away 3 percent of their newly earned savings and then not be
able to buy bread. That is not fun. But at some level there
should be, or I would encourage involvement via automatic
enrollment at some level to start building that habit because I
think that is critical.
Mr. KIM. No, I appreciate that.
Mr. Gorgone, do you have any thoughts here? Any other
wisdom from children's books?
Mr. GORGONE. I think one of the challenges with having
people enroll in a 401(k) is in their mind they are putting
money away and I can never touch it. It is like I do not have
it. And in case of an emergency, well, I need access to those
funds. There are features of 401(k)s that allow people to take
loans against the 401(k) and pay themselves interest rather
than paying somebody else interest. I think the more
fundamental problem though is not the fear of not being able to
have the funds available, because if that were the only issue,
more than 40 percent of the people would have $400 in savings.
And they would have other mechanisms by which they have saved
that money that made it available to them. I think when we look
across the board, the cost of student loans, the cost of health
care, the cost of housing, the cost of a lot of things that we
need in our day-to-day lives are a lot more expensive today
than they were yesterday. And my dad has always said you can
only spend a dollar one way, and you have got to be careful how
you spend it. So given a choice between health insurance or
housing or student loans or retirement and I am 30 years old,
guess which one loses.
Mr. KIM. And no, that is right. And look, this is something
that is really at the core of what I am trying to do here in
Congress. I just spoke at a press conference yesterday talking
about how when asked by a journalist how I will measure my
success here in Congress, I told them it would about the 40
percent of Americans that cannot handle a $400 emergency and
trying to drop the number of Americans that are constantly at
that precipice of fragility. I am trying to figure out how we
can help them save, how we can help them understand that they
do not have to make these important tradeoffs between student
debt, health care, retirement, and other aspects. So look, you
know, we are not going to be able to solve these all right
here, right now in this hearing, but I hope to be able to
continue to draw upon your expertise, your experience, as we
try to think of what tools we can that we will be able to
comprehensively address that issue. So thank you so much again
for your time.
I yield back my time.
Mr. GOLDEN. Thank you very much.
Well, I would like to thank all the witnesses for taking
time out of your schedules to join us here today to talk about
an important issue. Retirement security is one of the most
important issues facing Americans today. Retirement benefits
not only provide future financial security for business owners
and employees, but also allow entrepreneurs the ability to
attract and retain talented individuals as their businesses
grow. It is clear from this hearing that improvements to the
retirement system must be made to meet the needs of business
owners, their employees and entrepreneurs. I know by having
scheduled and called for this hearing, the Chairwoman thinks
this is a real priority, and she and the Ranking Member look
forward to working with members on both sides of the aisle in
this Committee to address this important issue.
And with that, I would ask unanimous consent that members
have 5 legislative days to submit statements and supporting
materials for the record.
Without objection, so ordered.
And if there is no further business to come before the
Committee, we are adjourned. Thank you.
[Whereupon, at 12:49 p.m., the Committee was adjourned.]
[Questions submitted to Mr. Paul F. Davidson from Hon. Troy
Balderson were not submitted in a timely manner.]
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