Benefits for small business: Clinton plan could expand retirement coverage for up to 10 million workers

Black Enterprise, July, 1996 by Carolyn M. Brown

Quality employees are a company's biggest asset. The best way to attract, retain and motivate this kind of employee is to offer a solid savings and retirement plan. Still, as an entrepreneur, you're probably all too familiar with the rising costs of employee benefits. Costs are especially prohibitive if you are the owner of a small firm faced with providing a retirement plan for your employees.

Responding to the needs of small business owners and employees, President Clinton has proposed a Retirement Savings and Security Act. According to the President, the plan "helps meet the challenge of economic security for all Americans. Fifty-one million working Americans - nearly half of whom are private sector workers - are not covered by an employer-provided plan. And while most small business owners want to offer pensions to their employees, the present system is so frustrating and costly, they cannot afford to do so," says Clinton.

Currently, 76% of workers in large businesses have employer-provided pensions, while only 24% of workers in small businesses have such retirement plans. President Clinton's proposal offers a simple small business 401(k) plan, which cuts through bureaucratic red tape with a one-page form, minus complicated employer filings, calculations or testing. It would also significantly reduce administrative costs. Right now, it costs from $8 to $50 a head to administer a pension plan.

President Clinton's proposal also allows all contributions to be immediately vested and fully portable, which means that employees can take their retirement savings with them when they leave or lose their job. Employers can choose when employees are fully vested; however, some companies don't allow for full vesting until after 10 years of service. Moreover, exiting employees are required to roll over their 401(k) money - without ever touching a dime - into another retirement savings plan, or face a 20% tax fee as well as a 10% penalty for withdrawing the money before the age of 59 1/2.

Clinton says that the proposed savings act could expand pension coverage for up to 10 million workers. In turn, workers could save up to $5,000 a year tax-free through automatic payroll deductions. Employers would contribute either 3% of salary or 1% plus a matchup to 5%.

"This plan would allow me to offer pension benefits to all of my employees, and that's good for them and for my business, says Shawn Marcell, president and CEO of Prima Facie Inc. in Conshohocken, Pennsylvania. The 11-employee firm, which manufactures and sells a digital video monitoring device, is now reviewing its 401(k) options.

Currently, small businesses have a difficult time competing with larger corporations in attracting and retaining employees, unless they can offer benefits such as a 401(k) plan," comments SBA Administrator Phillip Lader. "President Clinton's plan allows employees to carry their pensions with them throughout their careers, and that provides greater economic security for millions of Americans."

Another provision would allow penalty-free IRA (individual retirement account) withdrawals for major life expenses, including education and training, first home purchases, major medical expenses and long-term unemployment. It also doubles the income eligibility for IRAs from $50,000 to $100,000 for married couples and from $35,000 to $70,000 for single taxpayers.

In addition to increasing pension portability and allowing employers to accept rollovers, President Clinton's plan also opposes legislation that would encourage corporate pension raids. It would require regular reporting on this type of activity, with prompt action taken in cases where funds are misused. The plan seeks to protect government employees' and union workers' savings.