go to short-term employees. 3 35 that continued improvement in their business conditions will allow them to consider Atmual Don't Salary knowo['Most where to Full-Time go for information Employees on Plan Sponsor No Plan starting a plan in the future. Mr. Chairmen and Members of the Committee: Witness Disclosure Statement, Less than $20,000 9% 34% starting a plan. 2 5 Tax benefits for the owner are too small. 3 23 $20,000-$40,000 pursuant to Clause 2(g)(4) of Rule XI of the Rules 71 of the House: 56 Likelihood of Startin,g a Plan in the Next Two Years The Employee Benefit Research Institute (EBRI) is pleased that the House Education and Other reasons. 9 6 Over $40,000 17 7 Very likely 16% Workforce Committee has convened a hearing on H.R. 10, the Comprehensive Retirement Somewhat likely 23 Savings and Pension Reform legislation introduced by Reps. Rob Portman (R-OH) and Ben Educational Level o¢'Most Full-Time Employees Plan Sponsor No Plan Employee-related reasons are most often cited as the most important factor for not offering a • The Witness: Not too likely 29 Cardin (D-MD). While EBRI does not lobby or advocate for or against legislative proposals, our High school or less 38% 55% T - 127 plan, and business-related reasons, such as profitability, are also a main decision-driver. This Not at all likely 31 Dallas Salisbury is president and CEO of the Employee Benefit Research Institute (EBRI), work is intended to assist in evaluating potential results of proposals made by others. Some college 34 32 may explain why plan sponsorship rates remain low despite repeated legislative efforts to boost Washington, DC. Salisbury has headed the Institute since its founding in 1978. College degree or more 27 11 them. • What would lead to increased plan sponsorship? Nonsponsors were read a list of items Among companies with fewer than I00 workers, less than half (46 percent) are participating in • Length TheofOr Tig m aniza e Most tion:Full-Time Employees and asked if any would make them seriously consider sponsoring a retirement plan. The an emplo3anent-based retirement plan. EBRI has studied the issue of retirement plan H.R. Stay i0 With would Company address several of these issues in the following ways:Plan Sponsor No Plan EBRI is a private, nonprofit, nonpartisan public policy research organization based in highest percentage, 69 percent, said an increase in business profits. Next, 65 percent said sponsorship---and nonsponsorship--among small (100 or fewer) employees extensively. Since EBR| WaLess shington, than 3 DC. years Founded in 1978, its mission is to contribute to, 13% to encourage, and to34% • Employees prefer wages_and or other benefits--H.R. 10 would encourage education on tax credits for starting a plan, and 52 percent said reduced administrative requirements. 1998, we have conducted an annual Small Employer Retirement Survey (SERS) to explore small enhBetween ance the 3 deand velop 9m years ent of sound employee benefit programs a56 nd sound public policy 38 the value of having a retirement benefit by specifying that retirement advice provided to Library employer retirement plan sponsorship decisions. The survey is sponsored by EBRI, the American throu 10 gh years objeor ctiv more e research and education. EBRI does not lobby and 30 does not take positions 24 employees on an individual basis would be a nontaxable fringe benefit to the extent such Factors That Would Make Non-sponsors Seriously Consider Sponsoring a Plan Savings Education Council, and Matthew Greenwald & Associates. The focus of our statement, on legislative services are proposals. made available on substantially equivalent terms. An increase in business profits. 69% therefore, will be on the results of the 2000 Small Employer Retirement Survey, the most recent Implications for the Small Employer Issue Tax credits for starting a plan. 65 we have • Aanalyzed. large portion Results of workers of the 2001 are SERS seasonal, will part be released time, orthis high June. tunzover--H.R. 10 would The Education and Research Fund (ERF), established in 1979, performs the charitable, Committee on Education and the Workforce A plan with reduced administrative requirements. 52 permit rollovers from the various types of defined contribution arrangements (i.e., • Major drivers of low retirement plan sponsorship among small employers relate to educational, and scientific functions of the Institute. EBRI-ERF is a tax-exempt organization Availability of easy-to-understand information. 50 401 (k), 403(b), 2000and Small governmental Employer457) Retirement to each other Su_ey withoutFindinqs restriction, which would who they employ and the uncertainty of revenue flows. While issues of administrative Subcommittee on Employer-Employee Relations (under IRC Sec. 501(c)(3)) supported by contributions and grants. EBRI-ERF is not a private Demand from employees. 49 make retirement plans more attractive for these type of workers. cost and burden matter, they are only part of the puzzle. Therefore, the solution is not foundation (as defined by 1RC Sec. 509(a)(3)). Obstacles to Plan Sponsorship Allowing key executives United to save States more House in of Representatives simply "build it and they will come," by creating new types of retirement plans. • Revenue is too uncertain to commit to a plan, the business is too new and it costs too a retirement plan. 5 EBRI-ERF has a number of programs: • There Rather are ,a it number is buildofitreasons and make thatitcome attractive up inenough the Small for Emplo service yerproviders Retirement to decide Survey to on much to set up and administer--While the current version of H.R. 10 does not contain Lengthening of vesting requirements. 27 American Savings Education Council whywork moreatsmall selling employers it so thatdo small not offer employers retirement will make plans--it the sponsorship is not simplydecision a matter once of the tax credits for small employer plans, an earlier Senate version of similar legislation that Other. 10 Choose to Save ®Education Program administrative cost and burden. The survey asked small employers to identify the most business reaches a certain level of profitability and stability, and once retirement passed the Senate Finance Committee on Sept. 7, 2000, allowed for small businesses Consumer Health Education Council important reason for not sponsoring a plan, and to state whether a given reason was a planning and saving is more of a priority for the small employer's workers with 100 employees or less to be eligible for an annual tax credit of 50 percent on up to Comparative Profiles: Defined Companies Contribution With Research Retirement Hearing Program Plans and Those Without Plans "major" factor in evaluation. Twenty-one percent said that the most important reason was $1,000 of administrative costs for the first three years of a new plan. These credits, On Fellows Program that employees prefer wages and/or other benefits. In fact, our value of benefits surveys • As the SERS finds, 39 percent of small employers without plans say they are very or • Small along employers with other that additional sponsor credits retirement for businesses plans tend that to bepreviously distinctly did different not sponsor from small H.R. 10, Health The Confidence Comprehensive SurveyRetirement Program Security & Pension Reform Act have found that 76 percent of workers who can have only one employee benefit state a somewhat likely to start a plan in the next two years. The SERS provides data on employers retirement without plans, would plans, be in terms a motivator of revenue for those levelsnot and offering the composition a plan to consider of their work Health Security/Quality Research Program desire for health insurance. Eighteen percent of small employers say that the most force. what points these employers will primarily focus upon in making that decision. And, sponsoring one. Policy Forums important reason for not having a plan is the makeup of their work force, a large portion of SERS provides guidance to policymakers as to what factors can be affected by public • Required company contributions are too expensive--H.R. 10 would provide for Retirement Confidence Survey Program workers are seasonal, part time, or high turnover. Twenty-four percent say that revenue is pension policy. • Small employers that offer retirement plans tend to have higher revenues than small increases in deferral limits in defined contribution plans, making a salary reduction plan Retirement Security Research Program too uncertain to commit to a plan or the business is too new. Cost and administration- employers that do not have retirementTestimony plans. of more attractive to a small employer. Social Security Research Program related issues do matter, with 20 percent saying that it costs too much to set up and • Too many government regulations--H.R. 10 would streamline and simplify certain Education Programs--Policy Forums, Briefings, Round Tables administer a plan; that required company contributions are too expensive; or that there are Approximate Gross Revenue in Previous Dallas YearL. Salisbury Plan Sponsor No Plan reporting and testing regulations to encourage more employers to offer pension Publication Programs--printed and online too many government regulations. For most, therefore, the financial reality of running a Less than $2 million 37% 70% President and CEO, Employee Benefit Research Institute 1 coverage. EBRI Issue Briefs, EBRI Notes, EBRI Databook on Employee Benefits, small business is the primary impediment to having a plan. $2 million or more 41 16 • 7)tv benefits for the owner are too small--H.R. 10 would provides for increased EBRI Health Benefits Databook, Fundamentals of Employee Benefit Programs, Not reported Washington, DC 22 7 Reasons for Not Offering a Retirement Plan Most Important Maior contribution limits on an employer's deduction for contributions to certain types of Policy Studies Employees prefer wages and/or other benefits. 21% 38% defined contribution plans. In addition, H.R. 10 would allow workers over age 50 to • Small employers offering retirementApril plans5,tend 2001 to employ different types of workers than • A Contracts: large portion of workers are seasonal, contribute up to $5,000 in "catch-up" contributions in 401(k) plans. those that do not sponsor a plan--their employees tend to be older, have higher earnings, part time, or high turnover. 18 40 EBRI does not have any contracts with the federal government in 2001, and did not in t999 have more formal education, and tend to remain with the company longer. Revenue is too uncertain to commit to a plan. 13 45 or 2000. Potential 1 Motivators for Retirement Plan Sponsorship EBRI The isbusiness a private, is nonprofi too new. t, nonpartisan public policy research organization 11 based in Washington, 22 DC. Founded in 1978, its mission is to contribute to. to encourage, and to enhance the development of sound A,qe of Most Full-Time Employees Plan Sponsor No Plan • SERS found that the potential exists for increased plan sponsorship. Those likely to start It costs too much to set up and administer. 9 33 employec benefit programs and sound public policy through objective research and education. EBRI does not Under age 30 15% 27% a plan are somewhat more likely to report that the most important reason they don't Required company contributions are too expensive. 8 43 lobby and does not take positions on legislative proposals. 30-39 years 53 38 CU_Tcntlyhave a plan is revenue uncertainty and less likely to say it is because a large Too many government regulations. 3 24 Ages 40 and older 27 33 portion of their workers are seasonal, part time, or high turnover. This therefore suggests Vesting requirements cause too much money to 6 3 5 2