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As part of their retirement planning, most Americans rely on employer-based retirement plans.  As our population ages, it is critical that small employers and their employees have access to quality financial security in their retirement years.  But only 14 percent of small firms offer such a benefit.  

Small firms not only face the challenge of offering a retirement vehicle but enrolling their employees.  Roughly 50 percent of the private sector workforce participates in an employer-sponsored pension plan.  We can do better and have made strides in increasing that number.

However, recently released revenue procedures from the Department of Treasury may cause us to take two steps back in our efforts to increase retirement savings. While it is important to recognize and applaud your efforts to provide relief and fairness, the actions taken by the IRS may disproportionately harm small firms.  It could even cause small businesses to eliminate their plans.

The Internal Revenue Service is one of the key pieces to maintaining a healthy national retirement system. They have the important job of ensuring compliance and fairness within plans. And, because they can’t ensure that every plan is complying with the relevant rules and regulations, the Employee Plans Compliance Resolution System was created. 

This system is an important tool allowing plan sponsors to correct mistakes and avoid disqualification of the plan. It gives them a predictable and streamlined process for fixing inadvertent mistakes at a fair fee. Doing so has encouraged the sponsorship of many retirement plans and the financial security of workers.  I call this a tool in our retirement tool box.

Yet, the IRS abruptly and without any notice made substantial changes to the Voluntary Correction Program within this system. Rather than base fees on the participant plan size, IRS now charges fees based on the plan asset value. And, they have not provided any evidence suggesting this change was merited and the amounts reasonable. 

This leaves me very concerned about the future state of our retirement system and the costly consequences it will have for small plans. But, most importantly, I hope this hearing provides more information not only on the facts and circumstances behind this decision, but why the IRS did not follow the statutorily mandated requirement to consider the “special concerns and circumstances that small employers face with respect to compliance and correct of compliance failures.”

I understand that fees must be adjusted and changed over the years but such drastic actions by this agency leave me speechless over the disregard of how it affects small employers and workers all over this country. 

These consequences do not conform to this Committee’s efforts of assisting small firms with their retirement goals.  Any policy regarding retirement plans should ensure small employers have the resources they need to overcome challenges in compliance. It’s not only in their best interests, but our entire economy. For this reasons, we need to make sure that retirement plans are attractive for small businesses as their retirement saving is integral to our nation’s future.  

And that is why we are here to today.  This hearing will give us the chance to gather information about the rule, how it will harm small businesses, and why the IRS needs to rethink and reverse this rule.  Remember, first do no harm.

I thank the witness for being here today and I look forward to your comments.