Burr and Bennet Introduce Small Business Employee Retirement Savings Act

WASHINGTON – Today, Senators Richard Burr (R-NC) and Michael Bennet (D-CO) introduced bipartisan legislation to make it easier for small businesses to set up retirement programs for employees. The Small Business Employee Retirement Savings Act increases the retirement plan start up tax credit to $5,000, incentivizes auto enrollment, and removes restrictions to increase employee participation in retirement plans.

“I am proud to join Senator Bennet in introducing this bipartisan legislation to help more small businesses offer retirement plan benefits to their employees,” said Senator Burr. “This legislation gives small business employers better tools to empower employees when it comes to saving for retirement.”

“More than 990,000 Coloradans work for a small business, yet small business owners often find it difficult to offer retirement plans to their employees,” Senator Bennet said. “Our bill improves the tax incentives for small businesses to establish retirement plans and provides new incentives to help increase employee participation. This bipartisan proposal represents an important first step we can take to make it easier for Coloradans to save for retirement.”

The Small Business Employee Retirement Savings Act includes three key provisions that make is easier for employees of small businesses to prepare for retirement:

Increasing the Size of the Start Up Credit – Currently, small businesses (with less than 100 employees) receive a tax credit totaling 50% of the costs of establishing a new retirement plan or $500—whichever is less.  The credit can be taken for three years and can be used to offset the costs for starting up a new 401(k) plan, a SIMPLE retirement plan, or a simplified employee pension (SEP).   The bill would increase the credit from $500 to $5,000.

Creating a Credit for New Plans that Offer Auto Enrollment – The bill creates a new $500 per year tax credit (for up to three years) for small businesses that offer new retirement plans that include auto enrollment.  It would also apply to businesses that add auto enrollment to an existing retirement plan. 

Eliminating the 10% Auto Enrollment Limit – Currently, an employer can auto enroll an employee in a qualified plan and over time, can escalate the employee contribution to 10% of their wages.  This bill would eliminate the 10% limit, allowing employees to make larger contributions to retirement saving

A recent study by the Government Accountability Office (GAO) regarding the challenges facing small businesses that wish to start a retirement plan found that “....smaller or newer firms may be unwilling or unable to sponsor plans because they lack sufficient financial resources, time, and personnel. For instance, smaller employers noted that startup and ongoing costs involved with maintaining a plan, costs associated with reporting and testing requirements, administrative fees paid to an outside party, and any employer requirements to match employee contributions were barriers to plan sponsorship. Small employers also expressed the need to reach a certain level of profitability before they would consider sponsoring a plan and that general economic uncertainty makes them reluctant to commit to such long-term expenses.”

The President’s 2017 budget proposal states that “[n]umerous employers, especially those with smaller or lower wage work forces, have been reluctant to adopt a retirement plan for their employees, in part out of concern about their ability to afford the cost of making employer contributions or the per capita cost of complying with tax qualification and ERISA (Employee Retirement Income Security Act) requirements.”

The Small Business Employee Retirement Savings Act will expand access to employer-sponsored retirement plans by breaking down barriers that make it difficult for small business to provide this benefit to their employees.

The text of the legislation is available online here.