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STATEMENT

Of the Honorable Nydia M. Velázquez, Ranking Member

Committee on Small Business

“The Challenge of Retirement Savings for Small Employers”

October 2, 2013

Retirement security is a universal goal for most Americans.  As part of that retirement plan, most Americans rely on employer-based retirement plans.  As the baby boomer generations ages, it is critical that small employers and their employees have financial security as they enter their retirement years.

But the problem remains that only 14 percent of small firms offer such a benefit.  With 99 percent of all businesses in this country being small businesses, if we are truly going to make retirement security a reality, we must address their needs.

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.  While much of the problem can be attributed to a lack of employer offerings, nearly 20 million workers actively choose not to participate in plans offered by their employers. 

Improvements to the retirement system must meet the needs of business owners, while also encouraging more workers to participate.  It is clear that small firms face many obstacles when setting up a retirement plan. First, there is the cost of selection and administration.  The costs do not stop there either since employers are required to make matching contributions much of them time. Finally, small firms face ongoing fiduciary duties, such as reviewing investments and running discrimination tests – all while trying to run a business. 

Our system seems to almost discourage small businesses from offering retirement packages and helps explain the inequity in coverage rates for workers at small and large companies.

It is clear that to encourage small businesses to start offering plans, something needs to be done to address these obstacles.  Small employers face too many challenges and simply will not offer a retirement plan if they perceive that the burdens outweigh 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 increased tax incentives to small business owners who choose to sponsor a plan.  Another method to encourage workers to participate is to create an automatic enrollment IRA. 

These and other ideas merit further discussion.  But one thing is absolutely clear: we must act soon to help small businesses and their employees plan for their future.  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 allow members of the Committee to discuss the current vehicles that many small businesses use to provide retirement benefits and ways in which they can be improved upon.

With the proper tools, America’s small firms can sustain the economic growth currently underway simply by investing in their futures.

And with that, I thank all the witnesses for being here today and I look forward to your comments.

Thank you, Mr. Chairman.  I yield back.  

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