U.S. Sens. Mark Warner (D-VA) and Susan Collins (R-ME) introduced the SIMPLE Plan Modernization Act, a bipartisan bill to provide small business employers and employees greater flexibility and access to the popular SIMPLE plans as an option for retirement savings. The legislation has the backing of the AARP.
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. However, retirement plans among small employers continue to be less commonly offered than those provided by medium and large employers. While these smaller businesses had access to tax-favored retirement savings plans, including traditional 401(k)s, those plans are more expensive to administer.
“The changing nature of work has redefined the employee-employer dynamic, making it harder for small businesses to offer traditional safety net protections for workers,” said Sen. Warner.“We should make it easier for small business owners and their employees to begin saving for their retirement. This legislation is one step towards helping the American workforce prepare for the future.”
“In my home state of Maine, the vast majority of businesses are eligible to sign their employees up for SIMPLE Plans. Financial advisors from Presque Isle to Portland have shared their concerns that neither employees nor their employers are in a good position to save for retirement,” said Sen. Collins. “We must give small businesses and employees a better opportunity to save for retirement, and this legislation will provide such an opportunity.”
Businesses with 100 or fewer employees may currently create SIMPLE retirement savings accounts for their employees, so long as the employers do not have another employer-sponsored retirement plan.
The proposed legislation would increase the contribution limit for SIMPLE plans. Increasing the limit would achieve two basic goals: 1) Motivate more small business employers to offer a retirement savings benefit to their employees and 2) Allow small business employees to save even more each year on a tax-deferred basis.
The SIMPLE Plan Modernization Act would:
- Raise the contribution limit for SIMPLE plans from $12,500 to $15,500 (halfway between current SIMPLE plans and traditional 401(k)s) for the smallest businesses (1 to 25 employees), with a corresponding increase in the catch-up limit from $3,000 to $4,500.
- Give businesses with 26 to 100 employees the option of the higher contribution limits, and, in order to continue to encourage them to transition to 401(k)s when they can do so, increase their SIMPLE plan mandatory employer contribution requirements by one percentage point if they elect the higher limits.
- Allow for a reasonable transition period for employers who hire additional employees above 25.
- Make the limit increases unavailable if the employer has had another defined contribution plan within the past three years (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.
- Direct Treasury to study the use of SIMPLE plans and report to Congress on such use, along with any recommendations.
Sen. Warner has been a leader in finding solutions to the 21st century generational and technological changes that have led to perhaps the most dramatic transformation in the American economy in decades. He has introduced legislation that encourages employers to invest more in quality skills training for their workers. In addition, he has proposed a bill that would test-drive programs that provide contingent workers with “portable benefits” that have many of the social insurance protections typically offered to workers through traditional full-time employment.
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