Can't Afford a Retirement Plan? You May Be Able Soon

When the Retirement Enhancement Savings Act (RESA) passed unanimously through the Senate Finance Committee in 2016, it seemed that the country was on its way to expanding retirement coverage opportunities to small businesses, independent contractors, and others who were previously unable to afford to offer retirement plans on their own. However, the legislation stalled in Congress, leaving it up to the administration to fix this coverage gap.

The Government Accountability Office (GAO) has found that less than one-third of businesses with fewer than 50 employees offer a retirement plan. Due to their size, small businesses have a harder time providing retirement benefits. According to a recent Pew survey on small business views of retirement savings, these difficulties stem from the expense, limited administrative resources, and lack of employee interest. Allowing unrelated small businesses to pool their resources together to make it less expensive to offer a plan would counter these burdens. Under pooled plans, costs are shared among the adopting employers and can provide centralized payroll, one investment line-up, and one annual report and audit for the entire plan. This pooling translates into substantial economies of scale and cost efficiencies over stand-alone plans for small businesses.

Nearly three years after the initial introduction of RESA, President Donald Trump issued an executive order instructing the Department of Labor and the Treasury Department to expand retirement opportunity savings for small businesses, part-time workers, working owners, and others. This executive order is welcome news for workers who haven’t been able to obtain retirement plans, and employers who want to offer retirement benefits but are unable to afford them. In conjunction with the recently finalized association health plan rule, this order will expand overall benefit coverage for many Americans and give employers more opportunities to compete for the best talent.

This announcement was also apparently the jolt that Congress needed to swing into action.

Soon after the executive order, the Ways‎ and Means Committee issued Tax Reform 2.0, which includes the Family Savings Act. The Family Savings Act includes provisions expanding retirement coverage by allowing unrelated employers to pool resources. Tax Reform 2.0 passed out of the committee and is now headed to the House floor. If it passes the House, the Family Savings Act provisions will be conferenced with the Senate bill. So, there is still an opportunity for Congress to make this happen and make expanded retirement security permanent once and for all.

However, even if Congress cannot get this done, the administration will continue to push forward. While the executive order gives the agencies six months to issue guidance, the Department of Labor already has rules pending. There may be debate over whether it's better to have changes done by statute or regulation; however, there is no debate that expanding retirement and health care coverage will benefit millions of Americans.