[Senate Hearing 112-420]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-420
 
    OPPORTUNITIES FOR SAVINGS: REMOVING OBSTACLES FOR SMALL BUSINESS

=======================================================================



                                HEARING

                               BEFORE THE

                       SPECIAL COMMITTEE ON AGING

                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS


                             SECOND SESSION

                               __________

                             WASHINGTON, DC

                               __________

                             MARCH 7, 2012

                               __________

                           Serial No. 112-14

         Printed for the use of the Special Committee on Aging


         Available via the World Wide Web: http://www.fdsys.gov





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                       SPECIAL COMMITTEE ON AGING

                     HERB KOHL, Wisconsin, Chairman

RON WYDEN, Oregon                    BOB CORKER, Tennessee
BILL NELSON, Florida                 SUSAN COLLINS, Maine
BOB CASEY, Pennsylvania              ORRIN HATCH, Utah
CLAIRE McCASKILL, Missouri           MARK KIRK III, Illnois
SHELDON WHITEHOUSE, Rhode Island     DEAN HELLER, Nevada
MARK UDALL, Colorado                 JERRY MORAN, Kansas
MICHAEL BENNET, Colorado             RONALD H. JOHNSON, Wisconsin
KRISTEN GILLIBRAND, New York         RICHARD SHELBY, Alabama
JOE MANCHIN III, West Virginia       LINDSEY GRAHAM, South Carolina
RICHARD BLUMENTHAL, Connecticut      SAXBY CHAMBLISS, Georgia
                              ----------                              
                 Chad Metzler, Majority Staff Director
             Michael Bassett, Ranking Member Staff Director
                                CONTENTS

                              ----------                              

                                                                   Page

Opening Statement of Senator Herb Kohl...........................     1
Statement of Senator Bob Corker..................................     2

                           PANEL OF WITNESSES

Phyllis Borzi, Assistant Secretary, Employee Benefits Security 
  Administration, U.S. Department of Labor, Washington, DC.......     3
Charles Jeszeck, Director, Education, Workforce and Income 
  Security, U.S. Government Accountability Office, Washington, DC     5
Bryan Fiene, QPFC, Senior Vice President and Senior Investment 
  Consultant, Private Wealth Management, Robert W. Baird & 
  Company, Madison, WI...........................................    15
John J. Kalamarides, Senior Vice President, Institutional 
  Investment Solutions, Prudential Retirement, Hartford, CT......    16

                                APPENDIX
                   Witness Statements for the Record

Phyllis Borzi, Assistant Secretary, Employee Benefits Security 
  Administration, U.S. Department of Labor, Washington, DC.......    24
Charles Jeszeck, Director, Education, Workforce and Income 
  Security, U.S. Government Accountability Office, Washington, DC    39
Bryan Fiene, QPFC, Senior Vice President and Senior Investment 
  Consultant, Private Wealth Management, Robert W. Baird & 
  Company, Madison, WI...........................................    60
John J. Kalamarides, Senior Vice President, Institutional 
  Investment Solutions, Prudential Retirement, Hartford, CT......    66

                        Relevant Witness Reports

``Private Pensions: Better Agency Coordination Could Help Small 
  Employers Address Challenges to Plan Sponsorship,'' U.S. 
  Government Accountability Office...............................    75
``Leveraging Multiple Small Employer Plans to close the 
  Retirement Coverage Gap,'' Institutional Investment Solutions, 
  Prudential.....................................................   144

             Additional Statements Submitted for the Record

American Institute of Certified Public Accountants, Washington, 
  DC.............................................................   160
American Society of Pension Professionals & Actuaries, Arlington, 
  VA.............................................................   166
National Federation of Independent Business, Washington, DC......   169
Plan Administrators, Inc., De Pere, WI...........................   172
U.S. Chamber of Commerce, Washington, DC.........................   175


    OPPORTUNITIES FOR SAVINGS: REMOVING OBSTACLES FOR SMALL BUSINESS

                              ----------                              


                        WEDNESDAY, MARCH 7, 2012

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:05 p.m. in Room 
SD-562, Dirksen Senate Office Building, Hon. Herb Kohl, 
chairman of the committee, presiding.
    Present: Senators Kohl [presiding], Manchin, and Corker.

        OPENING STATEMENT OF SENATOR HERB KOHL, CHAIRMAN

    The Chairman. Good afternoon to everybody. We'd like to 
welcome you to this hearing today.
    American workers face a retirement gap, a gap between what 
they will need to retire and what they will have actually saved 
of $6.6 trillion, according to the non-partisan Center for 
Retirement Research at Boston College. To bridge that gap, we 
need to make it easier for employees to save at work, because 
that is where it is easiest for most people to save.
    However, for 42 million American workers, fully a third of 
the private sector workforce employed by small businesses, it's 
an opportunity that doesn't really exist. In fact, according to 
the Census estimates, as few as 29 percent of workers at small 
businesses have access to retirement plans at work. By 
comparison, 81 percent of workers at companies with more than 
100 employees have access to employer-sponsored plans.
    On the employer side, many small businesses want to offer 
retirement plans because without them they are at a competitive 
disadvantage when it comes to attracting and retaining good 
employees. With this in mind, this committee asked the 
Government Accountability Office to explore why so few small 
businesses offer retirement plans to their employees.
    As you will hear today, what the GAO heard from small 
business owners were general concerns about a lack of time and 
money to select and finance plans, as well as worries about 
being overwhelmed by administrative requirements and the risks 
of being held liable for high fees or for poor plan 
performance.
    We've been working with Senator Enzi and other senators, 
and we plan to introduce bipartisan legislation that will make 
it much easier for small business owners to set up retirement 
plans. Under our approach, which is supported by the U.S. 
Chamber of Commerce, small businesses would be able to pool 
together to create plans that use experienced financial experts 
to assume many of the administrative and fiduciary duties that 
small business owners have neither the time nor the expertise 
to monitor. This would lower costs and encourage more companies 
to offer retirement plans to small businesses, and ultimately 
this would result in more people saving for their retirement.
    Today we'll be hearing from the GAO about its findings and 
the Department of Labor about its efforts to reach out to the 
small business community. Then we'll turn to financial experts, 
including Mr. Bryan Fiene from my own State of Wisconsin, who 
will discuss the difficulties that small businesses face with 
savings plans, as well as the benefits of allowing small 
businesses to pool together.
    While everyone has an individual responsibility to save, it 
is also essential that all workers have the opportunity to save 
for their retirement. More small businesses in Wisconsin offer 
retirement plans to their workers than almost any other state 
in the nation. Nevertheless, just one in five small businesses 
in Wisconsin do offer retirement plans to their employees.
    By creating more and better opportunities for small 
businesses to provide retirement plans, we will come closer to 
building a universal, secure, and adequate pension system that 
can provide retirement security for all Americans.
    We thank everyone for being here today. We'll be turning to 
our Ranking Member, Senator Corker, in a moment.
    First, I'd like to recognize my staff director for this 
committee, Deb Whitman, who will be leaving us for a new 
challenge. Over the past five years, Deb Whitman has been a 
strong, effective, and highly skilled leader on the issues that 
have come before this committee. Her service and deep 
commitment are truly appreciated, and she will be greatly 
missed.
    So we now turn to Senator Corker, Ranking Member.

                STATEMENT OF SENATOR BOB CORKER

    Senator Corker. Thank you, Mr. Chairman, and thank you for 
this focus on small businesses and their ability, if you will, 
to offer retirement plans. This is something near and dear to 
my heart. I have been in business most of my life and have 
offered these types of plans and have seen some of the 
difficulties that can exist, and certainly in a country that 
has so many citizens that are over-leveraged and not saving for 
the future the way that we'd like to see citizens do, just 
because it's best for them to be able to do that, and with 
tremendous pressures that we're going to have longer term just 
over entitlement programs that exist, it's very important that 
people are setting aside monies.
    And so I very much appreciate your focus on this and am 
looking forward to the witnesses and what they have to say and 
the many questions that will follow.
    So thank you, and thank the witnesses.
    The Chairman. Okay, Senator Corker, thank you very much.
    We'll turn to our first panel right now. Our first witness 
will be Phyllis Borzi. She's the Assistant Secretary of Labor 
of the Employment Benefits Security Administration. Ms. Borzi 
has published numerous articles on ERISA, health care law, and 
policy and retirement security issues. She's been a frequent 
speaker to legal professionals, business, consumer, and state 
and local government organizations. Welcome.
    Then we'll be hearing from Charles Jeszeck, Director of 
Education, Workforce, and Income Security issues at the 
Government Accountability Office. He has spent over 26 years at 
the GAO working on issues concerning defined benefit and 
defined contribution pensions, the PBGC, Social Security, 
unemployment insurance, and older worker employment issues. We 
welcome you.
    Ms. Borzi.

   STATEMENT OF PHYLLIS BORZI, ASSISTANT SECRETARY, EMPLOYEE 
  BENEFITS SECURITY ADMINISTRATION, U.S. DEPARTMENT OF LABOR, 
                         WASHINGTON, DC

    Ms. Borzi. Thank you, Chairman Kohl, Ranking Member Corker. 
I am Phyllis Borzi, the Assistant Secretary of Labor for the 
Employee Benefits Security Administration, and I appreciate 
this opportunity to discuss this afternoon EBSA's work with 
small business.
    We agree with you, Chairman Kohl, that employment-based 
plans are the best way to have employees save for retirement. 
But today, less than half of small businesses offer these kinds 
of plans to their workers. So what we do is EBSA assists small 
employers through comprehensive education, outreach, and 
regulatory programs. What we do is we leverage our education 
and outreach efforts by partnering with the IRS, with the SBA, 
with the AICPA, with the Society for Human Resource Management, 
with the Consumer Federation of America and others.
    In 2000, the Department partnered with the SBA and the U.S. 
Chamber of Commerce to launch our program called ``Choosing A 
Retirement Solution For Your Small Business'', and this 
campaign helped small businesses understand the many retirement 
plan options available to them. In 2004, the Department worked 
with the SBA, with SHRM, with the AICPA, with the Chamber and 
the NFIB to develop a ``Fiduciary Education'' campaign. These 
ongoing campaigns create an awareness of the responsibilities 
involved in maintaining a retirement plan.
    After hearing from small businesses that they often look to 
their accountants for advice about establishing a retirement 
plan, the Department began to work with the AICPA, and recently 
the AICPA joined us as a presenter and publicized a webcast on 
February 23rd as part of America Saves Week. We also are 
working with the AICPA on a fiduciary education webcast series 
that's scheduled in March.
    Small businesses can access a full range of government 
resources through Business USA, which is a website that was 
formed, hosted by the SBA, formed as a result of a memorandum 
that President Obama issued a few months ago. This site serves 
as a central portal for Federal agency information of interest 
to small businesses, and it includes a link to the EBSA 
resources that promote retirement plan sponsorship.
    The Department also has a number of ongoing regulatory and 
guidance initiatives that help small business. Chairman Kohl, I 
know you've been very interested and a leader in the target 
date fund set of issues around them. The Department expects to 
soon release tips for plan fiduciaries on how to select these 
funds. As you know, in choosing a TDF, it's very important to 
understand the differences in investment strategies, in asset 
allocation, and investment-related fees. Even among target date 
funds with the very same target date, there are wide 
variations. Our guidance will help plan fiduciaries assess 
these differences.
    The Department has also provided tips for participants who 
are considering choosing a TDF. This we did in conjunction with 
the SEC and proposed disclosure changes to our qualified 
default investment alternative regulation that focuses on the 
need for greater disclosure around target date funds.
    I want to briefly mention two of our regulatory initiatives 
that benefit small businesses sponsoring retirement plans. 
First, on February 2nd, the Department issued a final 
regulation that improves the transparency of 401(k) fees and 
will help small businesses obtain investment, recordkeeping, 
and other services at a fair price. This will put small 
businesses on the same footing as larger employers and allow 
them to obtain information about retirement plan services, 
their costs, and service providers.
    Second, we're working to update our rule on when a person 
providing investment advice for a fee becomes a fiduciary under 
ERISA. Our revised fiduciary definition would protect small 
employers by making it more difficult for advisers to steer 
them into investment options that pay the adviser higher fees. 
Under the current law, advisers can avoid responsibility for 
these types of recommendations and for losses that result from 
imprudent advice. Our new rule will hold advisers responsible 
so that small employers can have confidence in the investment 
advice they receive and won't be left holding the 
responsibility for losses that occur when what they've done is 
dutifully followed the investment advice they've been given 
which turned out to be imprudent.
    Of course, the Department supports efforts to expand small 
business coverage and provide compliance assistance. However, 
in so doing, it's essential that ERISA's protection for 
workers' pensions be maintained. The Department is aware of 
promoters marketing so-called ``open'' multiple employer plans 
to small businesses. According to some promoters, these 
arrangements allow unrelated businesses to avoid ERISA 
reporting and fiduciary obligations. However, the lack of 
employer involvement may make these plans more susceptible to 
abuse by unscrupulous actors.
    EBSA has had difficult experiences over these decades with 
similar open employee benefit structures in the group health 
plan area, where multiple employer welfare arrangements, or 
MEWAs, have been the subject of civil and criminal enforcement 
actions for many years. Among other problems, MEWAs have 
generated large, often hidden, fees for the promoters. By 
bringing this type of product to the pension marketplace, we 
are concerned that it presents a number of complicated legal 
and policy issues. We have pending requests for guidance and 
are actively working on trying to answer these questions.
    So thank you again for the opportunity to testify at this 
important hearing. The Department recognizes the critical role 
that small businesses play in the economy, and we'll continue 
to expand our efforts to help them offer high-quality 
retirement plan options for their workers. Thank you so much.
    [The prepared statement of Phyllis Borzi appears in the 
Appendix on page 24.]
    The Chairman. Thank you very much, Ms. Borzi.
    Mr. Jeszeck.

 STATEMENT OF CHARLES JESZECK, DIRECTOR, EDUCATION, WORKFORCE 
  AND INCOME SECURITY, U.S. GOVERNMENT ACCOUNTABILITY OFFICE, 
                         WASHINGTON, DC

    Mr. Jeszeck. Thank you. Chairman Kohl and Ranking Member 
Corker, thank you for inviting me here today to discuss the 
state of pension coverage among our nation's small businesses 
and the challenges these businesses face in helping their 
employees achieve retirement security. My comments are based on 
the findings of our report that this committee is releasing 
today.
    Small employers are a critical sector of our economy, 
providing employment for many millions of Americans. Businesses 
with fewer than 100 employees, those firms which are the focus 
of our report, employ over 42 million workers, about one-third 
of the private sector workforce. Our report focuses on the 
extent of small business pension plan sponsorship, the 
challenges facing small businesses in providing such coverage, 
and the options that have been suggested to address these 
challenges.
    In summary, while longstanding observers of retirement 
security will not be surprised, the rest of us may find the 
results disturbing. Pension sponsorship among small employers 
is low, the challenges they face in sponsoring plans are many, 
and the numerous proposed solutions each have their advantages 
and disadvantages.
    In our study, where we were able to link IRS and Labor 
Department data on small employers and pension plans, we found 
an overall sponsorship rate of about 14 percent. To give 
context, most studies have found at any one time about 50 
percent of private sector workers participate in a pension 
plan.
    We also found that the larger the firm, the more likely it 
was to offer a plan. Among the smallest firms, those with one 
to four employees and who account for the majority of funds in 
our study, the rate was 5 percent. Sponsorship rates for firms 
with 26 to 100 employees were higher, at 31 percent. Similarly, 
small firms with low-paid workforces are generally less likely 
to offer a pension plan. About 3 percent of small employers who 
paid an average wage of $10,000 per year or less sponsored a 
plan.
    Of those small firms with plans, about 86 percent sponsored 
either a 401(k) plan or a SIMPLE IRA. Typically, the larger the 
firm, the more likely it was to offer a K plan and the less 
likely to offer a SIMPLE IRA.
    This low sponsorship rate is likely a consequence of the 
multiple challenges small employers report in considering 
whether to sponsor a plan. In our focus groups with small 
employers around the country, we heard about many of the 
barriers that either deterred them from forming a plan or made 
maintaining a plan difficult. These businesspeople took time 
out of their busy lives to tell us that they were overwhelmed 
by the number of plan design options from which to choose, and 
by the administrative requirements to be met, and that they 
were afraid that they were not fully knowledgeable about the 
legal responsibilities associated with sponsoring a plan. 
Others felt that the existing financial incentives to sponsor a 
plan were insufficient.
    Further, while Labor collaborates with other agencies to 
provide information and guidance to small employers on pension 
plans, most of the business people we spoke to were unaware 
that such information was available.
    Small employers, experts and other stakeholders suggested a 
variety of solutions to address these challenges. These ranged 
from enhancing available guidance from the government and 
relaxing certain reporting and disclosure requirements, to 
expanding current financial incentives to start a plan, to 
introducing broader, more universal solutions like the auto-
IRA. Each of these options poses tradeoffs. For example, some 
options may reduce Federal revenues, while others may represent 
significant departures from our existing voluntary employer-
based pension system.
    Thus, in light of this serious issue, we have recommended 
that Labor, building on its collaborative efforts with other 
agencies, take the lead in exploring this critical issue of 
small business plan sponsorship in assessing and developing 
proposals to address these challenges and in consolidating 
current sources of information and guidance to make it more 
accessible.
    That concludes my statement, Mr. Chairman. I'll be happy to 
answer any questions you or other members may have.
    [The prepared statement of Charles Jeszeck appears in the 
Appendix on page 39.]
    The Chairman. Thanks very much to both of you.
    The idea that we're talking about is setting up some kind 
of a central mechanism overseen by very professional, qualified 
organizations to which small businesses can turn to, look to, 
and collectively go to, to set up pension programs for their 
employees.
    Is it a good idea? Do you think it's worth pursuing? Is 
there any reason why we shouldn't pursue it? What are the 
chances of being successful in the marketplace so that we can 
increase the number of small firms that offer plans to their 
employees?
    Ms. Borzi.
    Ms. Borzi. Well, you know, the administration hasn't taken 
a position on this, so I'm certainly not going to get out ahead 
of the administration. But let me just explain to you some of 
the problems and challenges we see, because we've been looking 
at these since these arrangements have been brought to our 
attention.
    You know, for as long as ERISA existed, there have been 
provisions in ERISA that recognize multiple employer plans. The 
difference between these new arrangements that people are 
trying to organize and the longstanding arrangements that have 
been authorized under ERISA is that in the new arrangement 
there is not a requirement, as the statute and as our 
longstanding regulations require, that there be a connection 
among the employers, and we do that because the definition of 
employee benefit plan--the threshold issue is, is this an 
employee benefit plan, a legal issue, and the definition of 
employee benefit plan requires an employment connection.
    The plan, the arrangement has to be sponsored by an 
employer, by an employee organization, or by an association or 
an organization acting on behalf of employers. That employment 
connection is very, very important, and the new arrangements 
that people are talking about would not require that 
connection. It would allow an entity--and I know you're talking 
about experienced financial institutions, but there is no 
distinction in the rule, I mean in the current statute, as to 
who can sponsor these, except that you have to be an 
association and represent employees.
    The difficulty is that the employer, even in the current 
multiple employer plan, multiple employer trust arrangements 
under ERISA, the employer has to actually take a role in it. 
Now, that doesn't mean that they can't pool administrative 
expenses, that they aren't exempt from many of the fiduciary 
and reporting and disclosure rules. They are under the current 
rule. But to us, the difficulty is looking at the experience 
that we've had in the health area, where we've got these 
multiple employer welfare arrangements which for decades have 
been problematic, both civil and criminal problems.
    In the Affordable Care Act, Congress gave the Department of 
Labor new specific tools, like cease and desist authority, and 
search and seizure authority, because we have so many problems 
with health care fraud in these arrangements. The statutory 
language is exactly the same, and the arrangements on the 
health side where we have the problems are where they've been 
marketed to a group of unrelated employers, where there's not 
an association bond.
    Now, sometimes we've seen problems even in the association 
context. But generally, what the law says is that these 
employers have to come together for a purpose unrelated to just 
sponsoring a benefit plan. So a trade association under current 
ERISA law can get the same economies that you're talking about.
    And so the proposal that has been put before us which would 
allow a sponsor, if you will--I shouldn't use the word 
``sponsor,'' it confuses the legal context--would allow an 
entity to put together a group consisting of completely 
unrelated employers is problematic because of the statutory 
rule, and it poses challenges without the employer involvement.
    But certainly we're looking at it, and certainly we're 
willing to talk with you about it and work with you on it.
    The Chairman. Good.
    Mr. Jeszeck.
    Mr. Jeszeck. Yes, Senator. I should say I can't comment too 
much on this issue given that we are currently conducting work 
on multiple employer plans for Senator Harkin. I think as 
Assistant Secretary Borzi said, it's a very complex, very 
legalistic issue, and I think somehow you want to balance the 
potential for additional coverage and opportunity for 
retirement saving by workers with minimizing or ensuring that 
there is not a potential for abuse and that people lose their 
money. So I think somehow you want to thread the needle there. 
Our report is expected to be completed in June and hopefully 
will shed some light on this discussion.
    The Chairman. Thank you very much.
    Senator Corker.
    Senator Corker. Thank you, Mr. Chairman.
    Ms. Borzi, what is it about an association that causes the 
standards to be higher than just a group of businesses that are 
unrelated but want to make sure that their employees have 
benefits? It's hard for me to understand why the standards 
would be any higher, let's say, for the Association of General 
Contractors pooling together versus just an association of 
folks in a community in Chattanooga, Tennessee that might want 
to provide benefits to their employees.
    Ms. Borzi. Well, it goes initially to the statutory 
definition, which requires that an employee benefit plan be 
sponsored by employers, so that there be an employment 
relationship. But then it also says you can have this 
association of employers.
    You know, if you establish a plan, or if you purport to 
establish a plan with all unrelated employers, people can do 
that under the current law. It's just that the question is, is 
one plan established, or does each employer establish its own 
plan but with a common administrative structure? Under ERISA, 
since 1974, we've allowed this common administrative structure. 
But the issue is each employer, then, in that context 
establishes its own plan.
    I mean, one of the things that I want to call to your 
attention, and I think the GAO report included it, but 
certainly in one of the early publications we did that I 
mentioned in my testimony, this ``Choosing A Retirement 
Solution For Your Small Business,'' which we did jointly with 
the IRS, one of the most important features in this is the 
chart. This shows the various options that are already 
available to small businesses, and you can get to the same 
result that you're talking about using several of these 
options.
    So the question really is, and given what the GAO found, 
that employers were confused by the array of choices, it seems 
to me from a policy point of view the question is, would it be 
better to add yet another coverage option, which adds to the 
confusion and concern, or is maybe what Congress should be 
doing, in conjunction with all the rest of us, is looking at 
this array of choices and saying is there a way that we can 
consolidate? Are there ways that we can get economies of scale 
by combining some of these options so that we don't have--let's 
see, this has seven, eight options for small businesses. If I 
were a small business, and I have people in my family who run 
small businesses, and they have asked me what to do in terms of 
sponsoring a plan, there are several--all of these are 
relatively easy options to use.
    I guess the policy question is do we need another option 
that is structured like an approach that, at least in the 
health care marketplace, has been rife with fraud and abuse? 
And so I think that's the fundamental question. We're not 
opposed to expanding coverage. The question really is what's 
the best way to do it.
    Senator Corker. I appreciate the explanation. And just as 
an editorial comment, I think that what our nation does not 
need to do is get the Federal Government to limit choices that 
people have as it relates to retirement options. It needs to 
allow competition to work and expansion to take place. So I 
hope it won't get into a Big Brother mode in that regard, and I 
know you're not necessarily suggesting----
    Ms. Borzi. No, that's not what I'm suggesting.
    Senator Corker [continuing]. Or proposing. You're just 
laying out some questions.
    Which brings me to another point- I had two larger 
operations over time that were mine. One, we had a profit-
sharing plan, and it was a pain. I mean, it was troublesome to 
administer, and you were constantly concerned about whether you 
were getting the kinds of yields for your employees that were 
best and yet safe at the same time.
    And then the second, larger operation we had a 401(k), and 
it was like falling off a ladder. I mean, it's the simplest 
thing I've ever been involved in, and there were all kinds of 
people in the community that were well respected that were more 
than willing to educate the employees and carry out the plan.
    I guess I kind of wonder what the problem is. It wasn't 
expensive. These were people in a community that were 
respected. It worked very well. I'm really having difficulty 
understanding what the problems are as it relates to small 
employers, no matter how small, being involved in 401(k) plans. 
I mean, they're all over the place. It's like a Christmas tree, 
and all you've got to do is select one, and they work pretty 
well.
    So I'm having difficulty understanding what the impediments 
to people doing that are, and why anybody would need a 
financial incentive, if you will, to want to set aside 
resources for their employees.
    Mr. Jeszeck. Well, we heard a lot of different things from 
small employers. In general--well, one thing was they wanted 
honest, and what they felt to be unbiased information. A lot of 
401(k) service providers would approach these firms, these 
smaller firms, and sell them things, and there was a concern of 
these small firms that--not that these providers were going to 
rip them off or anything, but the fact that they were trying to 
sell them something. So they really didn't have confidence in 
the information that they got, and whether it was really in 
their best interest.
    Senator Corker. Were they hoping that we would tell them 
what was in their best interest?
    Mr. Jeszeck. Well, I think they were interested in getting 
good information. In fact, some of the quotes that we got from 
some of these focus groups illustrate this. There was one that 
said--this was a small consulting company. It had 10 employees. 
It had been around for seven years. And they said that if you 
want to start a 401(k) plan, it would be great if you could go 
to one source that tells you the information you need to know, 
what you need to do, and the forms that you need to fill out, a 
checklist of sorts.
    Senator Corker. Well, we have that available now, right?
    Mr. Jeszeck. So I think there is the potential here to help 
some of these employers. The other quotes we had--you know, 
these small businesses, they may be great at sales, they may be 
great at manufacturing, but they may not be financial service 
people. So some of these issues completely baffle them, and we 
would hear that a lot. We had one person who said----
    Senator Corker. Just let me focus on each of these.
    Mr. Jeszeck. Sure.
    Senator Corker. I agree that there are people who are more 
financially astute than others, and of course people out-source 
and get help from all kinds of professional folks most of the 
time if they're successful. So what is it that would be a 
rational approach to somebody who isn't particularly good at 
that? What is it that we might suggest that government do to 
help them be more sound in their judgment?
    Mr. Jeszeck. Well, I think in our report we do identify a 
lot of the collaborative efforts that Labor has done with other 
agencies in pulling together a lot of useful information. I 
think in our report what we tried to get at is that there could 
be some improvement here. I think if we could get some of this 
information, match it up better with some of these small 
employers, as a first step, that would really help them in 
feeling more comfortable with some of these issues.
    It was really--there was one other quote that I really need 
to share with you. This was a company that had been around for 
two years. It was an HR consulting firm. The quote was about 
choosing their investment options, and the woman said, ``It's 
very scary. Last night I was having nightmares about picking 
plan investment choices.'' Now, this person, a small business 
person, was not a financial person, and this seemed very 
daunting to them.
    And so I think to the extent that we can say that this is 
doable, it's not as complicated, there is information that can 
help them, walk them through these issues I think that would 
be, as a first step would be incredibly helpful.
    Senator Corker. I know my time is up. So what you're really 
advocating is just making information available to people so 
that they might be more open to creating these plans. And like 
Ms. Borzi, it looks like she's doing a lot of that already.
    Ms. Borzi. Yes, and one of the reasons--we know that one of 
the recommendations in the GAO report was that the Department 
of Labor be the central portal, and I know I should be a 
cheerleader for my agency, and I am, because they've done a 
fabulous job, but if I were a small businessperson, I wouldn't 
think to go to the EBSA website for information on retirement. 
I would think to go to the SBA website, which is I believe the 
reason that the President in this memorandum, in this order he 
gave all of the agencies that deal with this, was to use the 
SBA's Business USA as the central portal, because as a small 
business person, that would be most likely where the person 
would go.
    The SBA put together a working group, and we're part of it, 
the IRS is part of it, the other agencies that provide 
financial information and other kinds of resources for small 
businesses are part of it, and on that website there are links 
to our publications, to our website. We have a specially 
dedicated small business page on our website, and our folks put 
a lot of effort into it, and it is under-utilized. I'm willing 
to certainly say that.
    So I think we need to think about how better to get the 
information out that's already there, which doesn't mean that 
there isn't room for improvement in terms of getting additional 
information out.
    Senator Corker. I appreciate both of you coming here. And 
I, along with Chairman Kohl, would certainly love to see more 
people having plans. They are so simple, so simple today to 
create, and I think if people did need information, having a 
place to go, one central place would be helpful. And I think 
you're right to be sensitive that most employers are pretty 
reticent about going to the Department of Labor for anything.
    Ms. Borzi. I just don't think they think about it.
    Senator Corker. Yes, I agree. Thank you.
    The Chairman. Just one question Ms. Borzi before we turn to 
Senator Manchin. We're well aware of the dismal statistic of 
how few small companies offer retirement plans. On the one 
hand, I think I have been listening to you say that there are 
many options that they can go to, but we still have that 
statistic to deal with. So we're trying to come up with ways 
and means to get to a desired goal, which is to have more and 
more small companies engaged in offering retirement plans. Is 
that right?
    Ms. Borzi. Yes. I----
    The Chairman. I mean, do you agree with that?
    Ms. Borzi. I do.
    The Chairman. Or are you saying we have a system, it just 
doesn't seem to be clicking?
    Ms. Borzi. I'm not for closing the fact that we should 
maybe look at ways to simplify the system, maybe take some 
other steps.
    The Chairman. Okay.
    Ms. Borzi. I'm not saying that our system is perfect right 
now, that it's just a matter of people not having the 
information.
    I mean, I've been in this business for 40 years. I haven't 
been at the Department of Labor for 40 years, but I've been in 
this business for 40 years, and it's my observation, taking off 
my Department of Labor hat, as Phyllis Borzi, citizen taxpayer, 
it's my observation that what we've been able to do, what 
Congress has done over particularly the past two decades, in 
focusing on trying to simplify options and give more options to 
small business, I think what we've done, unfortunately, is 
we've been able to pluck all the low-hanging fruit. And now 
what we're left with is the really intractable problem of how 
to encourage small employers who, given all these other 
options, haven't taken those options.
    It's a hard, hard thing to do, and I'm the last person in 
America that's ever going to say we should give up, because my 
whole career has been devoted to try to expand opportunities 
for small businesses and for participants to have retirement 
plans. So I think we do need to work on this.
    The Chairman. Senator Manchin, do you have a comment, or 
two or three? Go ahead.
    Senator Manchin. I'm very sorry. If I ask a question that 
has already been asked, just stop me. But, Ms. Borzi, if I may, 
small business owners are concerned about plan administration 
fees, as you know, and all the different paperwork that goes 
with that. Not just a bottom line, but I'd like to have your 
perspective to ensure that the fiduciary duties to their 
employees they're going to be able to meet. They're concerned 
about can they do what they're going to have to do with the 
regulations, or are there going to be undue regulations put on 
them.
    Ms. Borzi. Well, we are working on some regulations that 
will ease the burden on small employers, but also will give 
them more tools to be able to make better choices. For 
instance, I did talk in my testimony about our 401(k) fee rules 
that will require the service providers to give plan small 
employers--it's primarily a problem of small and medium size 
employers--all the information about what they're actually 
paying for those investment options that they're offering to 
their employees, what they're paying in administrative fees, in 
recordkeeping fees, in investment fees.
    The problem of fiduciary responsibility for small employers 
is a difficult one, and we are looking at, in several different 
marketplaces, looking at ways to ease the burden.
    Senator Manchin. What is identified as the most burdensome 
regulations, or what's the most burdensome thing they have as 
businesses responding to----
    Ms. Borzi. I think just the whole notion of establishing a 
retirement plan is frightening to a lot of employers. I don't 
know that they necessarily understand what that means, but the 
fact that they don't understand it makes it more frightening to 
them than if they did understand it.
    Senator Manchin. Are we talking about incentives or 
reducing regulations? What do you think would be most helpful? 
Are you getting any input?
    Ms. Borzi. Well, we would certainly welcome input. We've 
gotten a lot of input as part of----
    Senator Manchin. What do you think will work?
    Ms. Borzi. Well, we're not quite sure yet. I think it has 
to be a combination of all of the above. So we are looking at 
regulations. We're looking at updating regulations. We're 
looking at regulations that could be consolidated or reduced. 
We're looking at all sorts of things.
    Senator Manchin. Sir, if I may ask you, many employers 
probably receive their information regarding investment options 
from probably a plan adviser. What makes you think they would 
come to the government for this advice?
    Mr. Jeszeck. Well, Senator, first of all, we found in our 
study that people used third-party service providers in a 
variety of areas. Not everybody used an investment adviser. We 
don't suggest that they necessarily should go to the Federal 
Government for that. I know that there are regulations 
concerning fee disclosure. That should be helpful, we didn't 
recommend that they go to the Federal Government to obtain 
investment advisors.
    I do want to get back to your question about fiduciary 
responsibility because that was something that we heard from a 
lot of the small businesses. People are afraid of getting sued 
even if, in fact, if they talked to an attorney or something, 
that the likelihood of that happening was really quite remote. 
That was something that they were afraid of. The term itself is 
somewhat a little fearsome for some of these companies.
    The other issue is in terms of paperwork. For a lot of 
small businesses it's not that they differentiate between the 
Form 5500 and annual reports and plan amendments. To them it's 
just one big group of--a bunch of paperwork requirements, and 
it just seems overwhelming, which is one of the reasons why, 
and given the discussion we've had here, that we recommended 
that there be a task force that Labor would head to work with 
other agencies that, among other things, would look at those 
reporting and disclosure requirements and maybe look to see the 
extent to which those things could be streamlined or 
simplified.
    So that was part of the basis for our recommendation.
    Senator Manchin. Thank you.
    The Chairman. Senator Corker.
    Senator Corker. Thank you.
    On the fiduciary piece, what kind of standard is there 
really? I mean, if you have--and maybe the second panel will 
speak to this. But what is the real risk? I know people are 
getting concerned about terms and liabilities that maybe they 
don't quite fully understand. But if you have a legitimate 
group that's handling this on your behalf, what is your real 
exposure as an employer in that fiduciary responsibility or 
relationship?
    Mr. Jeszeck. I would defer to----
    Ms. Borzi. Well, this is one of the difficulties, is that 
under ERISA, the people who we can hold accountable for 
imprudent investments, for instance, are people who are called 
fiduciaries, but many of the people today who provide 
investment guidance, et cetera, advice to small employers, what 
options to offer your employees, what should the platform look 
like in your 401(k), many of those people take the position 
that under the Department of Labor's old 1975 regulation that 
existed before 401(k) plans even were in existence, that they 
are not fiduciaries, and that was what I was alluding to in my 
testimony.
    What we're trying to do through our regulation is reduce 
the burden on small employers in particular, because what 
happens is a small employer, recognizing their inability to 
handle all these--make all these financial decisions 
themselves, will quite often reach out and hire somebody, a 
consultant, a broker, somebody to give them investment advice, 
and then they----
    Senator Corker. Hopefully they do, yes.
    Ms. Borzi. Right, and we want them to do that. But then 
when they follow that individual's advice or that entity's 
advice, and it turns out ultimately to be an imprudent 
investment, the person giving the advice steps back and says 
``Don't look to me.''
    And so we wind up at the Department of Labor, when we 
conduct our investigations, if there's a substantial loss to 
the participants in the plan because of an imprudent investment 
decision, we wind up with a Hobson's Choice. Either we leave 
the loss unaddressed or we have to go after the employer, in 
many cases a small employer, who is just as much a victim as 
the participants are because they hired an investment adviser. 
The statute says if you're an investment adviser for a fee, so 
if you get paid, then you're a fiduciary, but our regulation is 
mismatched with today's marketplace.
    So one of the things we are doing, and that's what I 
alluded to in my testimony, through regulation is to try to 
make it easier for small employers, relieve the burden for 
them.
    I'll tell you one of the things that businesses are most 
afraid of in the fiduciary context, and I think it's really 
just a misunderstanding of how the fiduciary rules play out in 
the law and in the cases. When somebody tries to decide whether 
a fiduciary's decision is prudent--that's the basic standard. 
Your decision has to be prudent, it has to be made for the 
exclusive benefit of the participants and beneficiaries. That's 
sort of the simple benchmark.
    In deciding whether a decision on the part of the fiduciary 
is prudent, you don't use hindsight. You don't say, oh, gosh, 
they invested in a hedge fund and it lost all this money. What 
you do is you look at what are the facts that the fiduciary had 
in front of him or her at the time they made the decision. Did 
they act prudently? Did they hire somebody to advise them if 
they didn't know what they were doing? Did they prudently 
select that person? Did they monitor what was going on?
    So it isn't if there a loss at the end of the road and, oh, 
my God, I'm going to get sued and I'm going to lose my 
business. That isn't the way the fiduciary standard is 
approached. But I think most small businesses--I can say this, 
again, from my own dealings with friends and family that run 
small businesses--I think they just don't understand that. I 
think that what happens, I think they think that they are the 
ultimate guarantors of the success of any investment they offer 
to their employees, and that's just not the case.
    Senator Corker. So it sounds like you can, without any 
legislative action, you can easily fix that through regulatory 
action at the Department level.
    Ms. Borzi. We can reduce the burdens on small employers 
significantly through regulatory action.
    Senator Corker. I know it's taking a long time, but I think 
this is very important to the topic. So it seems like you can 
fix that part.
    Now, on the investment part, aren't many of these 401(k)s 
today set up in such a way that the employee is actually making 
the decision? They'll have four or five or six, or maybe more 
options of investment modes, and the employees themselves are 
really directing the type of investments?
    Ms. Borzi. And they need investment advice as well.
    Senator Corker. But it still eliminates the fiduciary piece 
to a degree when that's happening.
    Ms. Borzi. That's right. But people who give them 
investment advice, as well as the people who give the employers 
investment advice, the employees need to know, the participants 
in the plan need to know that those people who give them 
investment advice are doing so in an unbiased way and that they 
can rely on the advice.
    Senator Corker. Okay. Thank you.
    The Chairman. Thank you both very much. You've been very 
helpful.
    Ms. Borzi. Thank you, Mr. Chairman. Thank you.
    The Chairman. So we'll turn now to our second distinguished 
panel.
    First we'll be hearing from Bryan Fiene, who is the Senior 
Vice President and Investment Consultant at Robert W. Baird & 
Company, Inc., in Milwaukee. Mr. Fiene is from Madison. He has 
spent 19 years in the financial industry serving dozens of 
small and medium-sized retirement plans that encompass 
thousands of people across southern and central Wisconsin.
    And next we'll be hearing from John Kalamarides, who is a 
Senior Vice President at Prudential Retirement, where he leads 
the Institutional Investment Solutions business. That includes 
Prudential Bank and Trust, Stable Value Funds, Institutional 
Retirement Income Products, and Institutional Investments. He's 
a frequent speaker at industry, professional, academic, and 
public policy conferences, as well as forums on practices and 
trends in the retirement area and the challenges facing today's 
plan sponsors and participants. Currently, he oversees more 
than $120 billion in assets.
    So, Bryan why don't you say a few words?

   STATEMENT OF BRYAN FIENE, QPFC, SENIOR VICE PRESIDENT AND 
SENIOR INVESTMENT CONSULTANT, PRIVATE WEALTH MANAGEMENT, ROBERT 
                W. BAIRD & COMPANY, MADISON, WI

    Mr. Fiene. Thank you, Chairman Kohl and Senator Corker and 
Senator Manchin. Good afternoon. I appreciate the opportunity 
to provide this testimony regarding small employer challenges 
to retirement plan sponsorship. As a financial advisor with 
Baird, I've served dozens of small businesses for 19 years. I 
am a designated qualified plan financial consultant, and I work 
with many small businesses on lots of issues.
    My firm, as you said, Baird, was established in 1919, and 
we have 100 locations around the country, including one in 
Nashville with a couple of good retirement plan teams down 
there.
    As a resident of Sauk Prairie, which is a very small town 
in southern Wisconsin, I'm very proud of our state, and 
Wisconsin has got dozens of world-class publicly traded 
companies, just as Tennessee does. I think we can all be proud 
of that, and I think the goal here, if I understand it 
correctly, is to get more participation from small businesses.
    We need to encourage these small businesses to succeed so 
that they can grow up to be household names and employ 
thousands of American workers. I think that's everybody's goal. 
So my testimony is going to focus on the following points.
    First, there are lots of reasons driving small employers 
away from offering retirement plans. We've heard some of those 
today.
    Second, Federal and state agencies have an opportunity to 
improve how they support small businesses, understanding 
whether and how to offer a plan.
    Third, financial advisers and plan providers play a 
critical role in helping small employers cope with challenges 
of adopting and maintaining a plan.
    Fourth, many small employers seeking to establish a plan I 
think will be helped by expanding the multiple employer plan 
option, and I'll talk about that a little bit as well.
    Pre-crisis, businesses needed a strong retirement plan to 
recruit and retain good people, as you said in your opening 
remarks, Senator Kohl. These days, all they need is an ad in 
the newspaper. It's really not that difficult to retain and 
find good people.
    The small business owner's personal finances are very 
complex, and generally they have most of their net worth tied 
up in their businesses, and a lot of their free cash is in 
their retirement account. You guys are both businessmen, so you 
know what I'm talking about.
    Faced with a lot of different choices, many small 
businesses have cut employer contributions for immediate 
survival and to fortify their balance sheets in case the 
economic situation worsens. Unfortunately, this is detrimental 
to participants, but many small businesses are left with few 
other options. They look at things at a very high level, asking 
what will this do to enhance my business and what is my risk in 
implementing and maintaining it. Those are probably their two 
biggest concerns.
    In studying a plan, small business owners will look at the 
risk versus reward, as they would with any investment. While 
the Department of Labor website offers a myriad of information, 
rather than turn to government for guidance, they often will 
seek out a trusted adviser to help navigate this decision, as 
they would any other related to their business. They will 
probably start with a financial accountant, adviser, or 
attorney. As Phyllis stated earlier, her friend asked her what 
kind of retirement plan they should start. That's where it 
starts with small businesses.
    A small business owner, like most Americans, has many 
competing priorities for their income. These priorities include 
Federal, state, and payroll taxes, living expenses, college 
savings for children. Often now they're caring for their own 
aging parents, and frankly their own retirement becomes a back-
burner issue.
    Of course, it would be remiss for me not to commend 
Congress and the Department of Labor for many recent 
innovations, and I think maybe the most powerful one is auto-
enroll. I can't emphasize enough how powerful that tool is 
going to be, I think, to grow retirement plans and help people 
down the road.
    Since I'm almost out of time, I'm going to move on, and 
certainly if you have questions, feel free to ask. I think, 
Senator Corker, you had a question about understanding why 
small businesses are not starting plans, and I think I might 
have an answer for you on that.
    So thank you for inviting me out here. Washington is a 
beautiful city and I'm having a great time.
    [The prepared statement of Bryan Fiene appears in the 
Appendix on page 60.]
    The Chairman. Great. Thank you, Bryan.
    John, go ahead.

   STATEMENT OF JOHN J. KALAMARIDES, SENIOR VICE PRESIDENT, 
   INSTITUTIONAL INVESTMENT SOLUTIONS PRUDENTIAL RETIREMENT, 
                          HARTFORD, CT

    Mr. Kalamarides. Thank you, Chairman Kohl, Ranking Member 
Corker, and members of the committee, for your invitation to 
discuss the challenges facing small employers in providing 
retirement plans. The focus of my testimony is going to be on 
multiple employer plans, a structure that enables small 
business owners to pool their resources into a single plan to 
enjoy efficiencies typically limited to large plan sponsors and 
to pass those benefits along to their employees.
    As a supplement to my written testimony, Prudential is 
releasing a white paper on this topic. Also, the U.S. Chamber 
of Commerce, which has reviewed and supports my testimony, will 
release its own white paper on the challenges facing plan 
sponsors and will propose solutions, including multiple 
employer plans.
    This afternoon I'd like to discuss the scope of the 
retirement coverage gap, the reasons for the gap, how multiple 
employer plans can help close the gap, and recommendations for 
expanding access to multiple employer plans.
    Too many employees do not have access to workplace 
retirement plans, and therefore do not save adequately. The 
Employee Benefit Research Institute found that more than 51 
percent of today's workers, or 78 million Americans, have no 
access to workplace retirement plans. This lack of coverage is 
most acute among employers with less than 100 workers. EBRI 
found that only 36 percent of employees with 10 to 100 workers 
provide plans, compared to nearly two-thirds of larger 
employers. EBRI also found that 58 percent of workers who do 
not participate in a retirement plan have saved less than 
$10,000, as compared to $59,000 saved by those who do 
participate. In short, the smaller the employer, the less 
likely their workers will have saved adequately for retirement.
    Small employers don't provide retirement plans due to cost, 
administrative complexities, and concerns about fiduciary 
liability. Looking from the perspective of an employer, I have 
an obligation to prudently select the plan service providers 
and investment options, assess whether the compensation I'm 
paying to the plan service providers is reasonable, ensure that 
my employees receive comprehensive disclosures about the plan's 
investment options and fees; and on the plan administrative 
side I have a legal obligation to ensure my employees receive a 
compliance summary plan description and quarterly benefit 
statements, I have to file an annual financial report, and 
perhaps hire an independent qualified public accountant. And 
finally, as an employer, I need to understand the serious 
penalties and litigation risks of not complying with these 
requirements.
    Clearly, these requirements are important to protecting 
plan participants, but understanding the requirements and 
liabilities can prevent many employers from establishing 
retirement plans, particularly small employers who, in my view, 
are less likely to be experts or have the finances to even hire 
an expert.
    The administration recognized these challenges in framing 
their auto-IRA proposal. That proposal, as I understand it, is 
premised on the adoption of a model plan under which employer 
responsibilities and liabilities would be limited to making 
timely employee contributions. We believe these principles can 
and should be extended to multiple employer plans.
    Multiple employer plans can offer employers the opportunity 
to reduce plan costs, achieve economies of scale through 
pooling, and pass those benefits along to their workers. A 
study by Deloitte and the Investment Company Institute 
referenced in our white paper demonstrates these potential 
savings. The average expense of a retirement plan for an 
employer with fewer than 100 employees is 132 basis points. If 
100 small employers were to pool their assets in an MEP, 
expenses could be reduced to roughly 50 basis points, 
generating more than a 60 percent savings for participants.
    MEPs also afford employers a practical means by which to 
have administrative and fiduciary responsibilities carried out 
by professionals. We at Prudential believe the MEP structure, 
with the adoption of a standardized plan design, would benefit 
small employers in particular. We refer to this combination of 
an MEP and a standardized plan as a multiple small employer 
plan, which is the focus of our white paper. An MSEP would 
include a model plan document to provide uniformity and 
increase portability, provisions for automatic enrollment, 
automatic contribution escalation, and a qualified default 
investment alternative. It would include a $10,000 annual 
contribution limit, and it would restrict participant loans and 
hardship distributions.
    To provide for MEP growth, we believe four legislative or 
administrative actions are required. First, expand the 
standards for MEP sponsorship. Second, limit the 
responsibilities of employers to making timely employee 
contributions. Third, limit the liability to the non-compliant 
employers, not all. And fourth, eliminate non-discrimination 
testing.
    We welcome the opportunity to work with the committee and 
the agencies on these important issues. This concludes my 
testimony. I'd be happy to answer any questions.
    [The prepared statement of John J. Kalamarides appears in 
the Appendix on page 66.]
    The Chairman. If we had a goal of getting up to 50 or 60 
percent of all small businesses providing pension plans, 
savings plans, is that a goal that we should have as a public 
policy in this country, or something of that sort in terms of a 
goal? And number 2, and I think you began to touch on it, John, 
how do we get there? I mean, is it worth pursuing? Is it a good 
public policy? I happen to think it is. So what do we need to 
do, John?
    Mr. Kalamarides. I think increasing retirement security for 
American workers is an incredibly important public policy.
    The Chairman. Yes.
    Mr. Kalamarides. To do that, a very efficient way for 
people to save for retirement is through the workplace.
    The Chairman. Yes.
    Mr. Kalamarides. We see the benefit of that through 
behavioral finance, paying yourself out of your paycheck first, 
and benefitting from the economies of scale and the ERISA 
fiduciary oversight that we get at the workplace.
    The 401(k) system works for larger employers. How can we 
bring that 401(k) system that's working so well to smaller 
employers? By doing the steps I outlined in my oral testimony, 
expanding access and promoting multiple small employer plans, 
allowing small employers to overcome the hurdles. Allow them to 
pool their purchasing power. Allow them to have the 
responsibilities that are appropriate for them, and to be able 
to rely on financial professionals for that critical guidance 
and fiduciary oversight.
    The Chairman. Yes. Bryan, do you agree with much of what 
John said?
    Mr. Fiene. Yes, I agree with what he said. I think, to add 
to that, I think the goal is terrific. I think it could be even 
higher. But the blockades to these small businesses are many.
    Senator Corker, you talked about your business and it was 
like falling off a ladder to have a 401(k). When you get down 
to the very small employers, the costs are very high versus a 
larger employer.
    Just to give you an example, I went on your website in 
Tennessee, and 49 percent of the employers in Tennessee are 
five people or less. Two-thirds are 20 people or less. I don't 
know any financial adviser or plan provider that would target 
that group to help them start retirement plans because it's not 
economically feasible. It takes approximately the same amount 
of time to set up a small plan as it does a large plan, but 
there's not any revenues there unless the business owner 
fronts, pays that bill up front. If it's spread across plan 
participants like it is in a larger plan, it's not a big deal.
    But when it's in a small plan, if you've got $1,000 for 
start-up, and maybe it's another $2,000, $3,000 a year to 
administer the plan, you're talking about 4 percent on a 
$100,000 plan. You've got five people, it takes $20,000 for the 
first year to get to $100,000.
    The financial adviser is also not compensated very much on 
that. We may net $100 on 30 or 40 hours of work with the small 
businesses. We do most of those businesses as a favor to our 
other clients, and in some cases we do it because the 
businesses will grow.
    But I think what the MEP--the ability to bolt on a small 
employer onto a plan that's got all of the qualities of a large 
plan, and I personally think if you allowed the expansion of 
MEPs, you'd see start-up costs go away. Competition would take 
care of that problem. I think features and benefits would go 
up, and as these multiple employer plans get larger, costs go 
down. It's happening all the time.
    So I think that's a great solution.
    The Chairman. Senator Corker.
    Senator Corker. Yes, regarding multiple employer plans for 
me, I like association health plans, I like anything that 
allows people to band together and lower cost.
    I do think there are people who service small companies who 
do other things for those small companies, like health 
insurance and those kinds of things--20 and smaller companies 
do those things and are glad to do them. But that doesn't mean 
I don't want to expand that, and I can't imagine why we would 
want to keep that from happening.
    As a matter of fact, you have to wonder why even an 
employee wouldn't have the ability, whether their employer was 
a member of this or not, if the employer wasn't making 
contributions on their behalf--certainly we did, and I think 
employers should - you would wonder why an employee, even if 
their employer wasn't a member, couldn't do it, right? I mean, 
we want to encourage that as much as we can, and as long as the 
standards are there, it seems like we'd want to do everything 
we possibly could to allow people to have the critical mass but 
also the opportunity to get in.
    The $10,000 limit issue you mentioned, what are you 
referring to when you say that?
    Mr. Kalamarides. I'm referring to the amount of a deferral 
limit of pre-tax contributions to this particular plan. 401(k) 
plans have a higher limit. Currently, they're well over 
$16,000, plus there's a catch-up contribution. When we thought 
about the multiple small employer plan concept, our whole goal 
was to increase coverage and keep cost and efficiency as clear 
as possible. To be able to do that, we structured a proposal 
that was simple and got to the essence of contributions.
    We also want to make sure that----
    Senator Corker. The maximum you can put in on a tax-
deferred basis would be $10,000?
    Mr. Kalamarides. That is what is in the multiple small 
employer plan proposal.
    Senator Corker. Why would you do that?
    Mr. Kalamarides. You would do that in a number of ways.
    Senator Corker. No. Why would you do that?
    Mr. Kalamarides. You could make it larger. The reason why 
we thought it was appropriate to have $10,000 is it gave the 
incentive that if a company or a group of individuals or a 
small business owner wanted to have the maximum contribution in 
a 401(k) plan, that they would then adopt all the standards of 
a 401(k) plan, not just what this multiple small employer plan 
concept is.
    Senator Corker. But why?
    Mr. Kalamarides. If we look--you could easily make it 
larger if you thought that that was an appropriate public 
policy, the tax deferrals associated with it.
    Senator Corker. What is in a 401(k), just for our 
education?
    Mr. Kalamarides. A 401(k) deferral is well over $16,000, 
and there's a catch-up contribution of $6,500 as a maximum 
deferral. An IRA----
    Senator Corker. And how far can you go back to catch up?
    Mr. Kalamarides. You can only provide contributions this 
year. If you are over a certain age, you're allowed to make 
catch-up contributions so that you can catch up towards the 
savings that you missed in previous years.
    Senator Corker. So $16,000 is the maximum tax-deferred 
contribution that can be made, including the employer 
contribution component?
    Mr. Kalamarides. No, not including that. The employee's 
contribution.
    Senator Corker. So then the employer, how much can the 
employer put in on behalf of an employee that is tax deferred?
    Mr. Kalamarides. I think the maximum amount is $36,000 in 
total contributions that an employer and an employee can put 
into a current 401(k) plan.
    Senator Corker. And so why wouldn't that be the limit on a 
multiple employer plan?
    Mr. Kalamarides. When we were making this proposal, we were 
trying to balance both the tax consequences and the incentives 
between and match up the capabilities between the deferral 
limits and the benefits and the responsibilities of an 
employer. An IRA has a much lower deferral limit. A 401(k) plan 
with increased responsibilities would have a higher limit, 
trying to create a continuum of options as we talked about, and 
the previous panel talked about as well. The increased deferral 
limits would become increased responsibilities.
    Senator Corker. So it's maybe a camel nose into the tent 
approach, too, that over time we could build upon.
    Mr. Kalamarides. Indeed.
    Senator Corker. Any comments, Bryan?
    Mr. Fiene. Yes. In my written testimony, I put an example 
in there of someone that makes a $17,000 contribution every 
year for 25 years, and if they make $100,000 a year, they end 
up at a 5 percent return worth about $900,000. And with a 5 
percent return on that, that's $45,000 a year pre-tax. 
Department of Labor's website said they need between 70 and 90 
percent of their income replaced at retirement. So they come up 
about 50 percent short, even with a $17,000 contribution.
    I guess we differ on this one. I think that they should be 
allowed to put in enough to get to where they need to be.
    Senator Corker. John, you're just basically trying to get 
something passed. Is that correct?
    Mr. Kalamarides. I'm not opposed to more. I recognize that 
that is probably the minimum necessary to make that attractive 
to a small business employer versus having an IRA just for 
themselves and not offering any solution to their employees.
    Senator Corker. I applaud both of your efforts to try to 
make these kinds of things happen. I know for years, in our own 
business activities, we did everything to try to create 
association health plans. I know that was very difficult. But 
this, with all the issues that we all face relating to people 
and their standard of living after retirement, seems like a no-
brainer, and I look forward to working with Senator Kohl and 
others to hopefully cause something like this to happen.
    So I thank you very much for your testimony. And I would 
agree with Bryan on the limits, for what it's worth.
    The Chairman. Some people have expressed concern about 
third-party plan administrators not looking out for the plan 
participants in the same way as an employer himself might. Is 
that legitimate, or do you think that's not a big issue for us 
to be concerned about?
    Mr. Kalamarides. I think that financial service providers 
that are experienced do take their role very seriously, and 
there is precedent for financial service providers acting in 
that capacity. When a plan exists and it is abandoned by that 
particular employer due to bankruptcy or death of the small 
business owner and the like, there are provisions already 
within the IRS code and the ERISA regulations that allow an 
independent trustee and financial service provider to act in a 
wide capacity, and we've included in our written testimony a 
proposal that new legislation or new regulatory guidance could 
build off of to specifically protect the employees by allowing 
financial service providers to act in that very similar 
capacity to abandoned plans.
    The Chairman. Good.
    Bryan, would you be worried about that?
    Mr. Fiene. No, I wouldn't be worried about it. I've seen, 
in my 19 years, I've seen an evolution by service providers 
from something that was very, very basic to something that is 
very, very sophisticated now. They can reach out, all the way 
down to single participants in plans now with education 
programs. They've got safeguards in place to prevent fraud and 
misuse. A few years ago when the lawsuits came down on mutual 
funds about the active trading in the mutual funds, they've got 
systems now where they can track your trades, whether it's 30 
days or 60 days or there's a penalty or you can't get back in.
    I think it would be fairly easy to work with a service 
provider and DOL or whoever is worried about it and work out a 
solution that everybody thinks is safe for participants.
    The Chairman. Thank you.
    Senator Corker.
    Senator Corker. Yes. I assume that anybody taking on the 
responsibility of administering a plan would be very open to 
very stringent penalties in every way if there were any kind of 
failures? I would think the fiduciary standard for any kind of 
sponsor would be far beyond what any employer would have of a 
personal plan. I mean, that's the kind of responsibility you're 
looking at, right?
    Mr. Fiene. Yes. It's been my experience that whenever a 
provider makes a mistake, and mistakes are made, in every 
instance they calculate whatever damages may have been done and 
they fix it immediately.
    Senator Corker. Are there insurance requirements or bond 
requirements or anything that are typically--is that the kind 
of thing that would be envisioned with multiple employer plans?
    Mr. Fiene. That's really not my area of expertise, but I 
would think you could work that out with them.
    Senator Corker. So you would envision exceptionally strong 
fiduciary standards and liabilities if people were to enter the 
business of being plan sponsors, and you would envision 
insurance and those types of things to cover activities that 
ended up because of fiduciary issues--not necessarily 
investments that went sideways but fiduciary responsibilities, 
you would envision tremendous liabilities being held by these 
folks?
    Mr. Fiene. Yes. I think it's critical that some of these 
fiduciary liabilities are transferred from plan sponsors that 
know nothing about fiduciary responsibility to sophisticated 
financial institutions that know everything about fiduciary 
liability.
    Senator Corker. But do you see those duties even being 
stepped up beyond what would be at an employer level?
    Mr. Fiene. I don't think that they would worry about 
tightening up procedures and policies at all. They've been 
doing it for 30 years.
    The Chairman. John, any other comments you want to make?
    Mr. Kalamarides. Thank you for the committee's attention to 
this important issue, and for increasing retirement security 
and coverage amongst small businesses.
    The Chairman. Thank you.
    Mr. Fiene. Thanks for having me out.
    The Chairman. Thank you, Bryan.
    Thanks, folks.
    [Whereupon, at 3:20 p.m., the hearing was adjourned.]
                                APPENDIX
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