Statement of The Honorable Ron Kind, a Representative from the State of Wisconsin

Testimony Before the Subcommittee on Select Revenue Measures
of the House Committee on Ways and Means

June 26, 2008

Chairman Neal, Ranking Member English and other members of the Subcommittee, thank you for the opportunity to testify today.

As a first term member of the House Ways and Means Committee, I decided early on to focus much of my work on issues and concerns relating to small businesses.  I did this for the simple fact that my district has a large number small businesses.  In fact, Wisconsin as a whole has 447,000 small businesses which employ a higher than national average of 54 percent of the workforce. 

Earlier this year I held several small business forums in my district where I continuously heard that retirement and savings issues were a top concern.  As I dug into the issue I discovered that the majority of small businesses don’t offer any retirement savings plans to employees because it is often a complicated, costly, and a somewhat risky endeavor. 

Small business owners often wear multiple hats and simply do not have enough time and resources to devote to administering a complicated financial product.  According to a survey of small businesses conducted by Harris Interactive, only 14 percent of small businesses offer a 401(k) plan and 63 percent do not offer any form of retirement benefits at all. 

That is why I, along with my friend and colleague Rep. Kenny Hulshof, introduced H.R. 5160, the Small Businesses Add Value for Employees (SAVE) Act of 2008, to make several enhancements to the existing SIMPLE IRA and SIMPLE 401(k) retirement plans.  These changes are supported by many in the small business community and the retirement industry in general as common sense approaches to encourage small business owners to offer savings plans to their employees.  

As you may know, SIMPLE IRA and SIMPLE 401(k) plans were created in 1996 to address the need for an easy way to administer savings plans for small businesses of 100 employees or less.  Since 1996, thousands of small businesses have taken advantage of the new plans, with almost 2 million workers now covered by a SIMPLE IRA. 

Very little modifications have been made to the SIMPLE IRA since it was first created.  On one hand, this is a good thing since we do not want to discourage small employers by constantly tinkering with the mechanics of the program, making it more costly to administer.  On the other hand, after over ten years of operation, I do think the SIMPLE IRA is ready for some modernization.

The SAVE Act would help accomplish this goal by helping minimize the barriers to small business retirement plan sponsorship through a number of important changes:

To increase flexibility for employers, H.R. 5160 would remove the requirement that SIMPLE IRA plans operate only on a calendar year basis.  Authorizing small business owners to make mid-year changes to their SIMPLE plans ensures that business owners need not wait until the beginning of the year to move to a new retirement plan. 

The SAVE Act also would change outdated SIMPLE IRA rules that unnecessarily restrict an employer’s ability to contribute to their employees’ savings.  Under current law, an employer is not permitted to match more than 3 percent of the employees salary or make more than a 2 percent nonelective contribution to workers’ accounts.  H.R. 5160 would remove this restriction and allow employers to make additional contributions to all participants’ accounts. 

To increase incentives for employers to offer SIMPLE IRAs, the SAVE Act would make a number of important reforms.  First, the SAVE Act would create a new Automatic IRA option under the Internal Revenue Code.  Automatic IRAs would provide a relatively simple and cost-effective way to increase retirement security for the estimated 71 million workers whose employers do not sponsor plans.  The Automatic IRA option would be voluntary on the part of the small business owner, but would require participating owners to automatically enroll employees in the plan. 

·         Second, the SAVE Act would increase the Small Employer Pension Plan Start-up Cost Credit for small business owners to 50 percent of the start-up costs for new SIMPLE IRA plans and would allow for a one-time $25 tax credit for every new employee who is enrolled in the savings program. 

Lastly, to increase incentives for employees to participate in SIMPLE IRA plans, the SAVE Act would update annual contribution limits.  Currently, although employees covered under a 401(k) plan are permitted to save up to $15,500 annually, a small business worker can save only up to $10,500 annually in a SIMPLE IRA.  I see no reason to continue a policy that discriminates against small business owners, particularly at a time when we are trying to encourage Americans to increase their personal savings.

In conclusion, Chairman Neal, I greatly appreciate the opportunity to testify today and to highlight this important legislation to improve the rules that govern SIMPLE retirement plans.  Larger pools of savings will have positive benefits for economic growth.  By encouraging savings, the amount of capital available for investment will increase, which is a primary source of job creation and worker productivity.  I look forward to working with you and the other members of the subcommittee to see these and other important reforms enacted.