[Senate Hearing 114-711]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 114-711

              RETIREMENT PLAN OPTIONS FOR SMALL BUSINESSES

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

                                HEARING

                               BEFORE THE

         SUBCOMMITTEE ON PRIMARY HEALTH AND RETIREMENT SECURITY

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                                   ON

         EXAMINING RETIREMENT PLAN OPTIONS FOR SMALL BUSINESSES

                               __________

                            OCTOBER 28, 2015

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions


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                  LAMAR ALEXANDER, Tennessee, Chairman

MICHAEL B. ENZI, Wyoming		PATTY MURRAY, Washington
RICHARD BURR, North Carolina		BARBARA A. MIKULSKI, Maryland
JOHNNY ISAKSON, Georgia			BERNARD SANDERS (I), Vermont
RAND PAUL, Kentucky			ROBERT P. CASEY, JR., Pennsylvania
SUSAN COLLINS, Maine			AL FRANKEN, Minnesota
LISA MURKOWSKI, Alaska			MICHAEL F. BENNET, Colorado
MARK KIRK, Illinois			SHELDON WHITEHOUSE, Rhode Island
TIM SCOTT, South Carolina		TAMMY BALDWIN, Wisconsin
ORRIN G. HATCH, Utah			CHRISTOPHER S. MURPHY, Connecticut
PAT ROBERTS, Kansas			ELIZABETH WARREN, Massachusetts
BILL CASSIDY, M.D., Louisiana
                                      

               David P. Cleary, Republican Staff Director

                  Evan Schatz, Minority Staff Director

              John Righter, Minority Deputy Staff Director

                                 ______

         Subcommittee on Primary Health and Retirement Security

                       ENZI, MICHAEL B., Chairman

RICHARD BURR, North Carolina         BERNARD SANDERS, Vermont
SUSAN M. COLLINS, Maine              BARBARA A. MIKULSKI, Maryland
MARK KIRK, Illinois                  MICHAEL F. BENNETT, Colorado
TIM SCOTT, South Carolina            SHELDON WHITEHOUSE, Rhode Island
ORRIN G. HATCH, Utah                 TAMMY BALDWIN, Wisconsin
PAT ROBERTS, Kansas                  CHRISTOPHER MURPHY, Connecticut
BILL CASSIDY, M.D., Louisiana        ELIZABETH WARREN, Massachusetts
 LISA MURKOWSKI, Alaska              PATTY MURRAY, Washington (ex 
LAMAR ALEXANDER, Tennessee (ex       officio)
officio)

                Sophie Kasimow, Minority Staff Director

                                  (ii)

                            C O N T E N T S

                               __________

                               STATEMENTS

                      WEDNESDAY, OCTOBER 28, 2015

                                                                   Page

                           Committee Members

Enzi, Hon. Michael B., Chairman, Subcommittee on Primary Health 
  and Retirement Security, opening statement.....................     1
Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode 
  Island.........................................................    25

                               Witnesses

Anderson, Scott, Owner, Static Peak, LLC; Member, Board of 
  Directors, U.S. Chamber of Commerce, Jackson, WY...............     4
    Prepared statement...........................................     4
Schoening, Lance, Member, Board of Directors, American Benefits 
  Council; Director of Product Management, Principal Financial 
  Group, Des Moines, IA..........................................     8
    Prepared statement...........................................     9
Kalamarides, John J., Senior Vice President of Institutional 
  Investment Solutions, Prudential Retirement, Hartford, CT......    11
    Prepared statement...........................................    13
Certner, David, Legislative Counsel and Legislative Policy 
  Director, AARP, Washington, DC.................................    17
    Prepared statement...........................................    18

                          ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.:
    American Council of Life Insurers (ACLI).....................    38
    Response by John J. Kalamaride to questions of Senator Scott     39

                                 (iii)


 
               RETIREMENT PLAN OPTIONS FOR SMALL BUSINESS

                              ----------                              


                      WEDNESDAY, OCTOBER 28, 2015

                                       U.S. Senate,
    Subcommittee on Primary Health and Retirement Security,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:35 p.m., in 
room SH-216, Hart Senate Office Building, Hon. Michael Enzi, 
chairman of the subcommittee, presiding.
    Present: Senators Enzi, Whitehouse, and Murphy.

                   Opening Statement of Senator Enzi

    Senator Enzi. I want to call to order the Senate Committee 
on Health, Education, Labor, and Pensions' Subcommittee on 
Primary Health and Retirement Security. Please come to order.
    There are only three of us here at the moment. There'll be 
others that will come and go. These are people that understand 
something about retirement, and they kind of rely on us for the 
information. I've been a part of every retirement bill that 
we've put through the U.S. Senate.
    I'm an accountant, and I learned a long time ago that if 
you talk accounting, people go to sleep. We've got some great 
witnesses here today, and I'm sure that won't be the case, and 
we'll get a lot of good information that we can put into 
solving some of the problems so that we can get more people 
into retirement plans.
    I'd like to welcome everyone to this roundtable discussion 
on Retirement Plan Options for Small Businesses. We'll be 
examining the expansion of multiple employer plans--I prefer to 
call them small business pooling--and other ways that the 
Federal Government can make it easier for small businesses to 
provide retirement benefits for their employees.
    I'm grateful to Ranking Member Sanders for agreeing to host 
this roundtable with me. I appreciate the bipartisan way that 
this roundtable was organized. I prefer roundtables to hearings 
because, too often, people think that the purpose of a hearing 
is to divide up sides and beat up on each other's witnesses.
    You're invited because you know something about the topic 
that we're talking about, and I prefer to get the information 
from you rather than us inundating you with questions. I'm 
grateful for the participation of the expert witnesses that we 
have here today.
    We've assembled an expert panel that includes a 
representative of the U.S. Chamber, who is from my home State 
of Wyoming; a representative of the American Benefits Council 
from the Principal Financial Group; Prudential Retirement; and 
the AARP.
    A critical challenge in enhancing the retirement security 
for all Americans is expanding plan coverage among small 
businesses. To address this, I believe we need to make 
retirement plans less complicated, less intimidating, and less 
expensive for the small business. One way to do this is by 
allowing the expansion of multiple employer plans.
    Multiple employer plans, MEPs, which have been permitted 
under ERISA and the Federal tax law for decades, allow small 
businesses to join together to make retirement plans much 
easier to manage and significantly less expensive to provide 
for owners of those businesses. Under current law, multiple 
employer plans must consist only of employees that are joined 
together by significant interests unrelated to the provision of 
benefits.
    It seems to me that access to multiple employer plans can 
and should be broadened to provide small businesses with 
administrative simplicity with regard to retirement benefits. I 
used to do accounting and did it for some businesses that had 
some of these retirement plans, and I know how complicated they 
can be and how poor the manuals are that are put out by the 
IRS, and I know that if we can simplify it for small 
businesses--and they don't have time to read manual after 
manual--that maybe we can make a better situation for the 
employees.
    In Wyoming, we have very small communities and very small 
businesses, and they're separated by great distances. Unless 
they can get together without having that significant interest 
related, we're going to have problems.
    In fact, as we'll hear today from the author of an 
excellent report on the expansion of multiple employer plans, 
this idea has been endorsed by a number of organizations who 
often have conflicting views on retirement issues. This past 
year, the bipartisan Senate Finance Committee Savings and 
Investment Report included a recommendation to allow employers 
to join together to open multiple employer plans. The report 
also notes, however, that current law hinders the formation of 
multiple employer plans by requiring a nexus between the 
employers who wish to join a Multiple Employer Plan.
    My interest in holding this roundtable is based on my view 
that Congress can help narrow the retirement coverage gap in 
America. I believe we can do this by helping the expansion of 
plan options for small businesses, including multiple employer 
plans, specifically by allowing the broadening of diversity 
among those businesses within such plans.
    Our goal for this roundtable is for our members to discuss 
the following three themes with our witnesses and each other. 
No. 1, what are some policy recommendations you can offer which 
would open up multiple employer plans to allow small businesses 
more flexibility? No. 2, what could the Federal Government be 
doing to encourage small businesses to help employees with 
retirement savings? And, No. 3, elaborate on any current 
regulatory or statutory challenges you've experienced or 
observed in offering retirement plans to employees in small 
businesses.
    Finally, I would urge committee members to focus on what we 
can agree on with regard to this particular topic. I know there 
are many contentious issues currently being debated that would 
impact retirees and small businesses. There is, however, 
bipartisan support for the expansion of multiple employer 
plans. This discussion will be a great opportunity for us to 
examine those bipartisan ideas.
    I had the opportunity to work with Senator Ted Kennedy as 
chairman and ranking member of the HELP Committee, and we were 
able to accomplish a great amount that we did when we adhered 
to an 80/20 rule. We focused on the 80 percent of the ideas 
that we had some agreement on, and we left the 20 percent for 
another time. With any of those issues that we worked on, we 
usually found 80 percent that we could agree on and 20 percent 
that if we left out would achieve the 80 percent that we could 
agree on and still be able to work on the other 20 percent 
until there was some other agreement. I hope all the committee 
members will join me in focusing on what we can agree on first.
    I'll invite Ranking Member Sanders to offer opening 
remarks. When he gets here, we'll allow him to make opening 
remarks.
    We'll get on to the witnesses, and I'll briefly introduce 
our witnesses and ask them to give a brief opening statement on 
the three topics I stated earlier, and then we'll begin the 
discussion. All of the testimony that you submitted will be a 
part of the record.
    Of course, another part that I always ask is that when the 
hearing is over, there'll be people that have questions, some 
who have been here, and some of us who won't have had an 
opportunity to ask all of our questions. We know we have a 
panel that has some expertise, and so we hope that we can 
submit questions this week and then get, hopefully, as quick a 
response as we can from you. We appreciate you taking the time 
to be here for the hearing as well as, hopefully, being willing 
to answer some of the written questions.
    Our first witness is Scott Anderson from Jackson, WY. He's 
the owner of Static Peak, a small business in Jackson, and a 
member of the board of directors of the U.S. Chamber of 
Commerce and the past president of the Jackson Chamber of 
Commerce. I particularly appreciate you coming out because I do 
that trip almost every week and know how difficult that is.
    Our second witness is Mr. Lance Schoening from Des Moines, 
Iowa. Mr. Schoening is a member of the board of directors of 
the American Benefits Council and the director of product 
management for the Principal Financial Group.
    Our third witness is Mr. Jamie Kalamarides from Hartford, 
CT. Mr. Kalamarides is the senior vice president for 
Institutional Investment Solutions with Prudential Retirement. 
He is also one of the authors of Prudential's white paper on 
multiple employer plans.
    Our fourth witness is Mr. David Certner from Washington, 
DC. Mr. Certner is the legislative counsel and the director of 
legislative policy for the Government Affairs at AARP. Mr. 
Certner has previously served as the chairman of the ERISA 
Advisory Council of the Department of Labor.
    Thank you all again for joining us for the discussion. 
After you each give a brief opening statement, we'll pose some 
questions and open it up for discussion. We'd like this 
discussion to be focused with members and witnesses having a 
dialog with each other on a number of issues.
    One of the things I've noticed in roundtables is that, 
sometimes, something that one of you says will remind another 
one of something, or a possibility of something you already 
thought of that could be combined to make things better. We can 
have a discourse between the four of you, too. We'll begin with 
the opening statements, and I'll go to Mr. Anderson first.

 STATEMENT OF SCOTT ANDERSON, OWNER, STATIC PEAK, LLC; MEMBER, 
   BOARD OF DIRECTORS, U.S. CHAMBER OF COMMERCE, JACKSON, WY

    Mr. Anderson. Thank you very much, Chairman Enzi, and also 
thanks to Ranking Member Sanders and members of the committee 
for hosting this opportunity to participate in today's 
discussion.
    My name is Scott Anderson. I own a company called Static 
Peak in Jackson, WY. We're a media company that reports on 
local community news. Like many other businesses in Wyoming, 
I'm what I would call a micro-business. My company has two 
employees, including myself.
    I'm here today representing the U.S. Chamber of Commerce, 
of which I'm a member of the Board of Directors, and I sit on 
the Small Business Council as well. I'm here to share my own 
experiences as a small business owner, as well as those of 
similarly situated businesses in the State of Wyoming.
    Because Jackson, WY, is a particularly small tourist town, 
there is a lot of turnover which creates a difficult time in 
hiring from the talent pool. Providing retirement benefits is a 
way that we can attract and maintain long-term employees for 
all businesses.
    Even though a number of small businesses already offer 
retirement plans, there are many more that would like to do so. 
As a business owner who would like to do so myself, I'm 
familiar with some of the hurdles of doing this. In addition, 
as past chairman of the Jackson Hole Chamber of Commerce, I've 
interacted with thousands of other small and micro-businesses 
in our area that are facing these same hurdles.
    In short, the hurdles facing small businesses are the costs 
and administrative complexity of retirement plans. I hope my 
comments will shed further light on these issues today.
    [The prepared statement of Mr. Anderson follows:]
                  Prepared Statement of Scott Anderson
    The U.S. Chamber of Commerce would like to thank Chairman Enzi and 
Ranking Member Sanders, and members of the committee for the 
opportunity to participate in today's Roundtable Discussion on 
Retirement Plan Options for Small Businesses. I am Scott Anderson, 
owner of Static Peak, LLC in Jackson, WY. Static Peak is a media 
company that aggregates and reports on community news. Like many other 
businesses in Wyoming I am a micro-business--my company has two 
employees, including me. I am here today representing the U.S. Chamber 
of Commerce of which I am a member of the board of directors and sit on 
the Small Business Council.
    The Chamber is the world's largest business federation, 
representing more than three million businesses and organizations of 
every size, sector and region. Over ninety-six percent of the Chamber 
members are small businesses with fewer than 100 employees.
    The topic of today's hearing--Retirement Plan Options for Small 
Businesses--is of significant concern to Chamber membership. Many small 
employers, like larger employers, offer benefits to their employees. 
These small businesses want to continue offering benefits but have 
their own unique issues. Other small businesses would like to start 
retirement benefits but face significant burdens. As a business owner 
who would like to offer retirement benefits, I am very familiar with 
the hurdles of doing so. In addition, as a past Chairman of the Jackson 
Hole Chamber of Commerce, I have interacted with thousands of other 
small and micro-businesses facing these same hurdles. As such, the 
Chamber believes that this is a critical topic to address and 
appreciates the opportunity to share our concerns and recommendations 
in response to the questions you have asked.
1. what are some policy recommendations you can offer which would open 
 up multiple employer plans to allow small businesses more flexibility?
    The Chamber views Multiple Employer Plans (MEPs) as another tool to 
encourage small businesses to implement retirement plans. MEPs offer an 
attractive and cost-efficient alternative for small businesses for 
which a stand-alone 401(k) plan is not feasible. MEPs allow for the 
pooling of resources to allow small businesses to tailor provisions in 
the plan in a way that wouldn't be possible in a prototype plan. The 
Chamber believes that MEPs can reach a potentially different audience 
than other plans designs because organizations (such as State Chambers) 
would be able to offer them to members. Thus, the use of MEPs could be 
expanded through trade associations and other organizations that work 
closely with small businesses.
    The greatest advantage of the MEP is the centralized functions that 
the MEP sponsor can provide. Costs are shared among the adopting 
employers, regardless of the number. For example, one plan 
administrator, trustee and named fiduciary can act for the entire MEP. 
The MEP can provide centralized payroll, one investment line-up and one 
annual report and audit for the entire plan. This translates to 
substantial economies of scale and cost efficiencies over stand-alone 
plans for small businesses.
    However, there are also significant disadvantages to participation 
in a MEP. The biggest of these is that every employer is jointly liable 
for the qualification failures of every other employer in the MEP. This 
liability can be a daunting hurdle for many employers. In addition, 
some employers may be discouraged by the inability to find a MEP 
sponsor or by the notice and disclosure requirements that are not 
completed by the plan administrator.
    Changing several of the rules regarding MEPs could significantly 
expand their use. For one, the Chamber recommends the implementation of 
safe harbors for MEP sponsors and adopting employers that would 
immunize them from non-compliant adopting employers. In addition, we 
recommend that MEP reporting and disclosure obligations under ERISA be 
simplified. Further, the Chamber recommends that the IRS and DOL 
clarify that ``employer commonality'' is not required to establish a 
MEP. While the Chamber believes that there is no basis to apply this 
requirement to MEPs, there is sufficient ambiguity to create reluctance 
on the part of the employers who might otherwise consider participation 
in a MEP.\1\
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    \1\ Under ERISA's definition of an ``employer'' that can sponsor a 
retirement plan, the independent provider of a MEP can be construed as 
a person ``acting indirectly'' in the interest of an employer in 
relation to an employee benefit plan, and a group of participating 
employers can be reasonably construed as a group of employers acting in 
such capacity. (ERISA section 3(5). By way of contrast, in two often-
cited ERISA Advisory Opinions, the DOL found that certain organizations 
that were not organized primarily for the purpose of providing 
retirement benefits, and were open to membership by individuals and 
other non-employers, were not bona fide groups of employers, and 
therefore, were not employers under ERISA. (See, ERISA Adv. Op. 83-15A 
(March 22, 1983); and ERISA Adv. Op. 88-07A (March 28, 1988). Thus, the 
Chamber believes that these Advisory Opinions can be differentiated in 
cases in which the ``members'' must be employers.
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   2. what could the federal government be doing to encourage small 
         businesses to help employees with retirement savings?
    There is no silver bullet that will resolve the issues of 
retirement coverage and savings. However, the Chamber believes that 
there are significant steps that policymakers can take to increase plan 
sponsorship and participation among small businesses.
    Enhance the Small Business Tax Credit. Enhancing the current small 
businesses tax credit for 401(k) startup costs would also encourage 
greater plan formation. The credit is allowed for the first 3 years of 
startup costs of a new small business retirement plan (with fewer than 
100 participants) of up to 50 percent of the first $1,000 (i.e., $500) 
in startup administrative and retirement-education expenses.\2\ The 
current credit is too small and short-lived to change behavior. 
Lawmakers should consider expanding the credit and making it refundable 
to increase the incentive for small businesses to set up 401(k) plans.
---------------------------------------------------------------------------
    \2\ I.R.C. section 45E.
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    Give Small Businesses a Dedicated Voice on Advisory Councils. Small 
businesses play an important role in the debate over the effectiveness 
of the voluntary employer-provided system; therefore, it is important 
to increase their representation in the debate. The advisory councils 
to the DOL, IRS, and PBGC are important sources of input to those 
agencies. However, none of them have a seat specified for small 
business. An important way to increase the voice of small business in 
the discussion of the employer-provided system is to have a small 
business representative on each of these advisory councils. As members 
of these advisory groups, small business representatives could work 
within the agencies to continue to find ways to encourage plan 
sponsorship among small businesses.
 3. please elaborate on any current regulatory or statutory challenges 
 you have experienced (or observed) offering retirement plans to your 
                   employees in your small business.
    Small businesses members have stated that the Chamber cannot over-
emphasize the need for simplification and a reduction in unnecessary 
regulatory requirements in the current retirement system. Small 
businesses are focused on running a business; therefore, anything that 
avoids increasing their liability and decreases their administrative 
burdens is important. In addition, stability, predictability and 
consistency among the regulatory agencies would go a long way toward 
encouraging greater participation in the private retirement system.
    Eliminate Top-Heavy Rules. The top-heavy rules are an unnecessary 
burden on employers that want to offer a 401(k) plan but are not 
inclined or are unable to provide a matching contribution.\3\ Under 
current requirements, if a key employee makes a deferral and the plan 
is top-heavy, it triggers a 3 percent required contribution for non-key 
employees.\4\ In addition, the deferrals made on behalf of family 
members of key employees are attributed to the key employee; thereby 
increasing the likelihood of triggering the top-heavy contribution. 
Because these rules directly affect the decisionmakers and owners in 
the company, they may effectively deter the implementation of the plan, 
which would have benefited all employees.\5\
---------------------------------------------------------------------------
    \3\ A qualified retirement plan that primarily benefits key 
employees--a top-heavy plan--can qualify for tax-favored status only 
if, in addition to the regular qualification requirements, it meets 
several special requirements. A retirement plan is top heavy if more 
than 60 percent of the plan's assets are attributable to Key Employees.
    \4\ I.R.C.  416(g); Treas. Reg.  1.416-1, Q M-7.
    \5\ I.R.C.  416(i)(1).
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    The Chamber believes that the top-heavy rules are unnecessary since 
the contributions are already subject to average deferral percentage 
(ADP) testing to ensure equanimity between highly paid and non-highly 
paid employees. Therefore, we believe the top-heavy rules should be 
eliminated. If they are not eliminated, we recommend that the rule be 
modified to encourage greater implementation and maintenance of 
retirement plans. For example, eliminating the requirement that 
deferrals made by family members be attributed to the key employee 
would be extremely useful.\6\
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    \6\ Another recommendation is to revise the rule so that, if a plan 
were top heavy, the eligible participants to receive the benefit would 
be only participants who meet the age and service requirements under 
Code section 401(a)(4) and 410(b) rather than all eligible individuals 
who remain employed on the last day of the plan year regardless of the 
amount of hours worked in the plan year.
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    Simplify Discrimination Testing. Another step policymakers could 
take is to simplify the average deferral percentage (``ADP'') test for 
nondiscrimination. For example, a plan would not pass the ADP test if 
(a) non-highly compensated employees' contribution percentage is less 
than 6 percent, and (b) the contribution percentage of highly 
compensated employees is 200 percent or more of that amount. If non-
highly compensated employee contributions exceed 6 percent, then the 
plan would pass the ADP test.\7\
---------------------------------------------------------------------------
    \7\ Another alternative is to use the nondiscrimination rules under 
Code section 403(b)(12) which are based on eligibility rather than 
utilization.
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    Streamline Notice Requirements and Allow for Greater Use of 
Electronic Disclosure. Consolidating and streamlining certain notice 
requirements would make retirement plan sponsorship more attractive for 
all businesses--small businesses, in particular. Currently, plan 
sponsors and participants are overwhelmed by the disclosure 
requirements. This feeling is particularly acute for small businesses 
that may not have a human resources department to focus on notice 
requirements.\8\ Furthermore, the notice requirements do not occur in a 
vacuum. Most employers that offer a retirement plan also offer other 
benefit plans such as a health care plan; therefore, employers are also 
subject to those notice requirements. Additionally, employers are 
required to provide many other notices outside of the ERISA context.
---------------------------------------------------------------------------
    \8\ Roughly 95 percent of small businesses have 25 employees or 
fewer. In addition, many do not have a human resources department or a 
CFO. Consequently, small businesses may not have management personnel 
who can effectively deal with the volume of notice and disclosure 
requirements.
---------------------------------------------------------------------------
    In general, the Chamber recommends a congressional review of all 
retirement plan notices under ERISA and the tax code to determine where 
there is overlap and duplication. The following are specific 
recommendations that we offer at this time:

     Eliminate the notice for the 3 percent nonelective safe 
harbor. While it may have intended to serve a policy purpose at one 
time, it appears to serve no purpose today.
     Include the 401(k) safe harbor match information in the 
Summary Plan Description rather than it remaining as a stand-alone 
notice.
     Replace quarterly investment statements with annual 
notices for participants who have internet access to their investment 
account information.

    There are many more notices that can be consolidated or eliminated. 
A thorough congressional review could identify many ways of relieving 
unnecessary administrative burdens of little or no marginal utility 
while ensuring that participants receive information that is meaningful 
and relevant.
    In addition to consolidation and elimination, it is important for 
regulators to recognize the benefit of electronic delivery. Moreover, 
we believe that it is critical that the Department of Labor, Treasury 
and the PBGC create a single, uniform electronic disclosure standard.
    To start, the Chamber recommends that the Department of Labor's 
safe harbor for the use of electronic delivery of required disclosures 
be changed in accordance with the guidance provided under Field 
Assistance Bulletin 2006-3.\9\ Field Assistance Bulletin 2006-03 
provides that with respect to the furnishing of pension benefit 
statements, good faith compliance is met if the disclosure is provided 
in accordance with Treasury regulations.\10\ The Treasury regulations 
provide that information may be provided electronically without 
consumer consent provided that the ``electronic medium used to provide 
an applicable notice must be a medium that the recipient has the 
effective ability to access.'' The Treasury standard differs from the 
Department of Labor standard in that the ability to effectively access 
the electronic medium is not required to be in a location where the 
participant performs their job duties and use of the medium does not 
have to be an integral part of those duties.
---------------------------------------------------------------------------
    \9\ The safe harbor rule is found under ERISA section 2520.104b-
1(b).
    \10\ Field Assistance Bulletin 2006-03 requires compliance with 
Treasury regulation section 1.401(a)-21.
---------------------------------------------------------------------------
    Beyond this initial step, we recommend that the Department of Labor 
change its standard for electronic delivery to encourage the use of 
electronic delivery and to allow, for those plan sponsors that wish, 
that electronic delivery be the default delivery option for benefit 
notices. The Chamber believes that modernizing the restrictive rules on 
electronic delivery in this manner is a critical element in the larger 
task of reforming employee benefit plan notice and disclosure 
requirements. These changes can allow for the provision of important 
information without it being submerged in an avalanche of rarely used 
information.
    In conclusion, the Chamber encourages action by policymakers that 
will encourage small businesses to participate in the employer-provided 
retirement system. We look forward to working with this committee and 
Congress to forward ideas that will encourage further plan sponsorship 
and participation by all businesses and small businesses in particular. 
Thank you for your consideration of this statement.

    Senator Enzi. Mr. Schoening.

   STATEMENT OF LANCE SCHOENING, MEMBER, BOARD OF DIRECTORS, 
  AMERICAN BENEFITS COUNCIL; DIRECTOR OF PRODUCT MANAGEMENT, 
           PRINCIPAL FINANCIAL GROUP, DES MOINES, IA

    Mr. Schoening. Good afternoon. I'm Lance Schoening from 
Principal Financial Group. I'm director of product management 
and also a Policy Board member of the American Benefits 
Council.
    Chairman, Ranking Member and other members of the 
subcommittee, we want to thank you on behalf of the Council and 
Principal Financial Group for spending time and attention on 
this very important issue. At Principal, this is an issue that 
we discuss on a daily basis. It's part of our strategic focus.
    The American Benefits Council is a national nonprofit 
organization dedicated to protecting and fostering privately 
sponsored employee benefit plans. Its members include large 
multistate U.S. employers that offer employee benefit plans to 
their active and retired workers and families, as well as 
organizations that provide employee benefit services to 
employers of all sizes.
    As a Council board member, the Principal fits both of those 
qualifications. We're a multistate U.S. employer, and we're 
also a provider of retirement services to over 43,000 employer-
sponsored retirement plans today, and there are more than 4 
million plan participants. The Council asked us to represent 
them today because of our focus on small and mid-size 
employers.
    Of those plans that I mentioned that we provide services 
to, the vast majority of those are for employers that have 
employees of 500 or less. This is what our company was founded 
on. It's what we do day in and day out and have done for the 
last 70 years. For the last several years, encouraging 
retirement readiness efforts has been a high level initiative 
at our company, encouraging employers and their financial 
advisors to consider plan designs that drive appropriate levels 
of savings.
    My specific role at Principal is to ensure that we have an 
appropriate and appealing product and service set for our 
employer-plan sponsor clients, and also to encourage them to 
use retirement readiness plan designs. While I'm more confident 
today than ever that the innovations we've been able to apply 
to the market and for our clients' plans, as well as those of 
our peer industry firms, are meeting the needs, we need to 
encourage more small businesses to establish plans, and we need 
to encourage greater plan participation and higher levels of 
savings with existing plans. That's really the key challenge 
and two facets of that challenge.
    When you look at small plan sponsors today, and you look at 
the adoption rates of auto features, they are significantly 
underutilized when compared to large employers in the United 
States today. That means that a larger percentage of their 
employees are not participating in the plan and not having the 
opportunity to save. We must find ways to improve this result.
    In our written statement, we've laid out a three-prong 
strategy to approach these challenges, including supporting 
multiple employer plans for unrelated employers; establishing a 
more flexible, cost-effective, auto feature safe harbor that's 
really designed to appeal to small employers today; and 
providing targeted and meaningful tax incentives for small 
businesses who form plans and adopt progressive auto feature 
designs.
    In summary, I'm very excited to be part of this discussion 
on behalf of Principal and American Benefits Council, and we'd 
like to offer any continued assistance that we can provide to 
the subcommittee on this topic.
    [The prepared statement of Mr. Schoening follows:]
                 Prepared Statement of Lance Schoening
    As the Senate Subcommittee on Retirement Security considers 
retirement plan formation and sponsorship among small businesses, the 
Principal Financial Group, on behalf of the American Benefits Council 
(the ``Council''), is pleased to offer our insights based on our work 
with thousands of small business retirement plan clients. Principal is 
a member of the Council's board of directors.
    The Council is a national nonprofit organization dedicated to 
protecting and fostering privately sponsored employee benefit plans. 
Its members include large multistate U.S. employers that provide 
employee benefits to active and retired workers and their families as 
well as organizations that provide employee benefit services to 
employers of all sizes. Collectively, the Council's members either 
directly sponsor or provide services to retirement and health plans 
covering virtually all Americans who participate in employer-sponsored 
benefit programs.
    As a leading provider of retirement plans and a global investment 
management leader, the Principal Financial Group provides comments 
based on more than 70 years in the retirement industry and our 
experience with small- to medium-sized businesses and their employees. 
We currently provide retirement services to more than 43,000 retirement 
plans and 4.2 million employee participants, including more than 38,000 
retirement plans of small businesses\1\ and their 1.6 million 
participants.
---------------------------------------------------------------------------
    \1\ Retirement plans of small business defined as those with less 
than 500 participants.
---------------------------------------------------------------------------
    For millions of Americans, a workplace retirement plan is the 
primary vehicle, beyond Social Security benefits, for accumulating 
savings to generate comfortable income in retirement. According to data 
from the Bureau of Labor and Statistics,\2\ 76 percent of full-time 
private sector workers have access to a workplace retirement plan, and 
78 percent of those with access participate. Furthermore, government 
and the industry have made great strides at enhancing the system and 
improving retirement readiness among participants.
---------------------------------------------------------------------------
    \2\ Bureau of Labor Statistics, U.S. Department of Labor, National 
Compensation Survey, March 2015.
---------------------------------------------------------------------------
    There is still a significant portion of the working population that 
does not have access to a workplace retirement savings plan. The gap in 
workplace retirement plan coverage is most pronounced among employees 
of small businesses. For workers without access to a workplace 
retirement plan, 57.8 percent work for companies with fewer than 100 
employees.\3\
---------------------------------------------------------------------------
    \3\ Employee Benefit Research Institute, Issue Brief No. 405, 
``Employment-Based Retirement Plan Participation: Geographic 
Differences and Trends, 2013.''
---------------------------------------------------------------------------
                        addressing the challenge
    Tackling the retirement coverage gap will require a multi-faceted 
approach focused on America's small employers. Our recommendations 
mirror many of those outlined in the Senate Finance Committee's Savings 
& Investment Bipartisan Tax Working Group's July 2015 report.

     First, we must expand access by encouraging more small 
businesses to establish workplace retirement plans and multiple 
employer plans (MEPs) should serve a key role. A MEP is a single 
retirement plan that is adopted by multiple, unrelated employers that 
want to significantly reduce the administrative burdens and fiduciary 
responsibilities of sponsoring a plan on their own. MEPs also afford 
small businesses the opportunity to band together with others to gain 
scale and realize benefits available to larger plans.
     Second, we must address the dual challenges of improving 
participation and savings rate adequacy among single-employer plans 
sponsored by small businesses. Automatic feature plan designs are 
significantly underutilized and of those plans that have adopted 
automatic enrollment, the default deferral rate is typically set at 3 
percent of pay with no automatic escalation.
     Finally, effective incentives are needed to encourage 
small plan formation with particular emphasis on encouraging adoption 
of progressive automatic feature designs.

    We will address each of these approaches in the context of the 
subcommittee's specific questions below.
What are some policy recommendations you can offer which would open up 
        multiple employer plans to allow small businesses more 
        flexibility?
    A number of regulatory and legislative changes are necessary to 
open up MEPs to the broader small business community.

     Current guidance from the Department of Labor requires a 
nexus or bona fide relationship between each adopting employer to 
consider a MEP a single plan and afford certain administrative and 
expense efficiencies, such as a single 5500 filing and plan audit. New 
guidance or legislation should expand MEP availability to small 
businesses with no formal, joint relationship--given conditions are 
established to ensure appropriate ERISA protections. We recommend the 
approaches discussed in the Senate Finance Committee's Savings & 
Investment Bipartisan Tax Working Group's July 2015 report.
     The Internal Revenue Code, while recognizing multiple 
employer plans, applies many requirements to each adopting employer. 
Referred to as the ``bad apple rule,'' any adopting employer failing to 
meet tax-qualified plan criteria can disqualify the entire MEP's tax-
qualified status. The IRS or Congress should provide that the adverse 
consequences of a non-compliant employer are limited to that employer 
and allow the MEP to spin the offending employer out of the MEP.
     Employers adopting a plan should be permitted--to the 
extent workable--to shift the fiduciary responsibility to third parties 
to make it easier for employers and to ensure appropriate expertise. We 
stand ready to work with Congress and regulators to establish 
appropriate and workable rules.
What could the Federal Government be doing to encourage small 
        businesses to help employees with retirement savings?
    We know that automatic features can work in driving improved 
retirement outcomes for participants. Adoption has become virtually 
mainstream for many large businesses. However, among small businesses 
auto-feature adoption is significantly underutilized. A report from 
Vanguard\4\ found that approximately 60 percent of large employers 
utilize automatic enrollment but only between one-quarter and one-third 
of smaller plans (under 1,000 employees) do so. Other studies focused 
on micro-plans show even lower adoption rates. For those small 
businesses who do utilize automatic enrollment, the default deferral is 
most often set at 3 percent of pay with no automatic escalation 
feature. Such a design gets employees enrolled in plans, but does not 
generate adequate savings rates.
---------------------------------------------------------------------------
    \4\ Vanguard's Center for Retirement Research, How America Saves 
2014.
---------------------------------------------------------------------------
    A regulatory safe harbor design, the Qualified Automatic 
Contribution Arrangement (QACA), was created in an effort to 
incorporate adequate automatic enrollment and escalation features 
(minimum 3 percent deferral escalated to at least 6 percent), while 
offering the plan sponsor the ability to forgo nondiscrimination 
testing. The design requires a minimum 3 percent automatic deferral 
escalated to at least 6 percent and a minimum two-tier matching formula 
of 100 percent on the first 1 percent of pay and 50 percent on the next 
5 percent of pay. Unfortunately, take-up has been limited. Of the 
Principal's own block of clients that utilize automatic features, only 
8 percent use the safe harbor design. We feel this is due to two 
reasons: the inflexibility and complexity of the matching formula and 
the fundamental increase in matching cost for most plans (the minimum 
employer match contribution is 3.5 percent of pay).
    In an effort to encourage increased coverage, wider adoption of 
auto-feature designs, and increases in automatic feature adoption rates 
with provisions to drive adequate savings levels, we urge Congress to 
support additional automatic arrangement safe harbor designs that will 
appeal to the majority of small business plan sponsors, designs that 
are simple and sensitive to increased costs. The Council supports 
recent bipartisan proposals and looks forward to working with Congress 
as the legislative process continues.
    Tax credits such as those outlined in The Savings & Investment 
Bipartisan Working Group's July 2015 report are another tool that is 
important to encouraging small plan formation and adoption of 
successful designs. The credits include increased tax credits for new 
plan formation and new credits tied to adoption of progressive auto-
feature plan designs, specifically those with default deferrals of 6 
percent.

    Please elaborate on any current regulatory or statutory challenges 
you have experienced (or observed) offering retirement plans to your 
employees in your small business.

    From the broader perspective of a retirement services provider of 
many small businesses, the common statutory and regulatory challenges 
that we hear from small businesses relate to administrative burden, 
fiduciary liabilities, and specifically, nondiscrimination testing. 
Regarding the latter, small business sponsors of plans with low 
participation rates often fail nondiscrimination testing, requiring 
owners and highly compensated employees to receive refunds limiting 
their ability to adequately save for retirement in their own plan.
    The recommendations we have laid out in this statement directly 
address challenges identified by small businesses. Multiple employer 
plans are excellent choices for small businesses seeking to offer a 
retirement benefit to their employees but do not have the resources, 
time or expertise to feel comfortable sponsoring their own plan. A 
workable auto-feature safe harbor, with incentives including safe 
harbors from nondiscrimination tests and additional tax incentives, 
will appeal broadly to small businesses and particularly those who have 
been challenged by testing failures. Such changes will result in good 
public policy, increasing auto-feature adoption among small plans, 
increasing plan participation among workers, and establishing adequate 
savings rates.
                                 ______
                                 
                  about the principal financial group
    The Principal Financial Group (The Principal)\5\ is a global 
investment management leader offering retirement services, insurance 
solutions and asset management. The Principal offers businesses, 
individuals and institutional clients a wide range of financial 
products and services, including retirement, asset management and 
insurance through its diverse family of financial services companies. 
Founded in 1879 and a member of the FORTUNE 500, the Principal 
Financial Group has $53.3 billion in assets under management and serves 
some 19.9 million customers worldwide from offices in Asia, Australia, 
Europe, Latin America and the United States.\6\ Principal Financial 
Group, Inc. is traded on the New York Stock Exchange under the ticker 
symbol PFG. For more information, visit www.principal.com.
---------------------------------------------------------------------------
    \5\ ``The Principal Financial Group'' and ``The Principal'' are 
registered service marks of Principal Financial Services, Inc., a 
member of the Principal Financial Group.
    \6\ As of April 2015.

    Senator Enzi. Thank you.
    Mr. Kalamarides.

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

    Mr. Kalamarides. Thank you, Chairman Enzi and Ranking 
Member Sanders and members of the committee. I'm Jamie 
Kalamarides. I lead the Investment Businesses and Trust Company 
at Prudential Retirement in Hartford, CT.
    Prudential is the second largest U.S. life insurer and a 
top 10 global asset manager. We provide retirement plans in all 
sizes of corporations, governments, unions, and not-for-
profits. As detailed in our white paper entitled, ``Multiple 
Employer Plans--Expanding Retirement Savings Opportunities,'' 
retirement plan coverage is the critical gap in providing 
financial security to working Americans.
    According to the Employee Benefits Research Institute, 
those with access to workplace-based retirement plans save 16.4 
times more than those without. Retirement plans are available 
at most medium and large employers, and because of automatic 
enrollment, automatic escalation, and QDIAs, they work.
    Only 50 percent of the 5.6 million small businesses with 
less than 100 employees offer retirement plans. This lack of 
coverage is especially acute for the 30 million women, 12 
million Latinos, 6 million African Americans, and 4 million 
Asian Americans that work at these small businesses.
    Prudential surveyed 850 small businesses without retirement 
plans in March and April of this year and found that there are 
three barriers to adoption: cost, administrative hassle, and 
fiduciary responsibilities. In that same survey, we found that 
small business demand would increase by 250 percent by removing 
these barriers.
    Open multiple employer plans can be a solution. When I 
refer to open multiple employer plans, I'm not referring to 
those multiple employer plans that are sponsored by bona fide 
employer organizations, long permitted under the DOL 
interpretations. Rather, my focus is on MEPs that have not 
been, but should be, permitted and encouraged, that is, open 
MEPs. To expand sponsorship and participation in open MEPs, 
Congress should address the challenges presented by tax law, 
ERISA, fiduciary liability, and ensuring the integrity of the 
marketplace.
    We at Prudential recommend five changes to Federal law. 
First, allowing unaffiliated businesses with separate employee 
groups to pool their purchasing power. This means removing the 
commonality of interest requirement.
    Second, reducing the liability of small business owners to 
only those decisions that they actually make. That is, removing 
the one-bad-apple rule and transferring fiduciary 
responsibility to professionals.
    Third, directing the IRS and Labor Department to develop a 
model plan design that includes all the best behavioral finance 
best practices and eliminates discrimination testing.
    Fourth, empowering the Department of Labor with enforcement 
capabilities, such as registration, reporting, and cease and 
desist powers.
    And, fifth, passing the Lifetime Income Disclosure Act 
sponsored by Senators Isakson and Murphy of this committee and 
directing the Department of Labor to reduce barriers to 
employees' selection of lifetime income options.
    The benefits of these small changes can be substantial. 
Employees without access will be automatically enrolled, save 
through institutional investments, and have the possibility of 
employer matches. Employers will have limited ongoing costs and 
administrative hassle. And, finally, according to the ICI/
Deloitte survey, all-in fees could fall by 80 to 100 basis 
points.
    Open MEPs are supported as a small business solution in 
every retirement coverage bill introduced in the 113th and 
114th Congresses. The Senate bills with MEP concepts have been 
sponsored by Senator Whitehouse and Senators Collins, Nelson, 
and McCaskill, and in the past by Chairman Hatch and Senators 
Harkin and Brown.
    Thank you, Chairman Enzi, Ranking Member Sanders, and 
members of the committee, for your focus on retirement savings 
solutions at small businesses through MEPs.
    [The prepared statement of Mr. Kalamarides follows:]
               Prepared Statement of John J. Kalamarides
                              introduction
    Thank you Chairman Enzi and Ranking Member Sanders and members of 
the committee for the opportunity to participate in today's discussion 
of how we can expand retirement savings opportunities for the millions 
of Americans employed by small businesses in this country.
    I am Jamie Kalamarides, Head of Institutional Investment Solutions, 
Prudential Retirement. Prudential is the second largest life insurer 
and a top 10 global asset manager with over $1.2 trillion in assets 
under management. Prudential provides workplace-based retirement 
solutions to all sizes of corporations, governments, unions and 
consumer groups.`
    Prudential has long been concerned about what is often referred to 
as the ``retirement coverage gap,'' that is, the absence of retirement 
savings opportunities for employees in far too many of today's small 
businesses. It is well-established that employer-sponsored retirement 
savings plans have become a critical component of the private 
retirement system in the United States, and a proven tool for helping 
working Americans prepare for life after work. According to 
calculations by the nonprofit Employee Benefit Research Institute, 
workers earning between $30,000 and $50,000 per year are 16.4 times 
more likely to save for retirement if they have access to a workplace 
plan.
    Unfortunately, tens of millions of working Americans don't have 
access to a plan on the job, leaving many ill-prepared to meet their 
financial needs after they stop working. With 10,000 individuals 
reaching retirement age each day, this is a large and growing problem. 
We know that a comprehensive retirement plan requires a stable three-
legged stool--Social Security, personal savings, and pensions. While 
Social Security is a critical program, for median income earners, it 
replaces only 47 percent of pre-retirement income, leaving those 
without a workplace retirement plan with a potentially significant 
income gap in retirement.
    The workplace retirement system works very well for employees of 
medium and large companies. Employees of small companies, however, are 
far less likely to have access to savings opportunities. According to 
data from the Bureau of Labor Statistics, only 50 percent of workers in 
firms with fewer than 100 employees have access to retirement plans at 
work. This compares to 89 percent for workers at larger firms.
    This retirement coverage gap is especially problematic given that 
small employers provide jobs for a large and diverse section of the 
American population. Small businesses in the private sector provide 
over 30 million jobs for women. Small businesses employ over 12 million 
Latino Americans, 6 million African Americans, and 4 million Asian 
Americans--and yet, only 50 percent of employees of small businesses 
have access to a workplace retirement plan.
    The retirement coverage gap can and should be narrowed. While a 
variety of solutions are possible, there is a growing consensus among 
financial institutions, consumer groups and some Members of Congress\1\ 
that one of the broadest and most expedient ways to close the gap is to 
expand access to multiple employer plans, or MEPs, for small employers 
and their employees. MEPs--single plans utilized by two or more 
employers--have been utilized successfully for years by trade 
associations and professional employee organizations. Unfortunately, 
tax laws and regulations discourage or prevent most small employers 
from taking advantage of them.
---------------------------------------------------------------------------
    \1\ Legislation relating to addressing MEP issues has been 
introduced in the 114th Congress by Representative Richard Neal (D-
MA)--H.R. 506; Senator Sheldon Whitehouse (D-RI)--S. 245; Senators 
Susan Collins (R-MA), Bill Nelson (D-FL) and Claire McCaskill (D-MO)--
S. 266; and Representatives Vern Buchanan (R-FL) and Ron Kind (D-WI)--
H.R. 557).
---------------------------------------------------------------------------
    Addressing the constraints on multiple employer plans has 
bipartisan support in both the U.S. Senate and U.S. House of 
Representatives, as well as support from the U.S. Chamber of Commerce, 
AARP, many affinity groups, and the financial services industry. Most 
recently, the Senate Finance Committee's Savings & Investment 
Bipartisan Tax Working Group issued a report in which it indicated 
that,

          ``[t]o enable small employers to sponsor high-quality, low-
        cost plans, the working group recommends that the committee 
        consider proposals that allow employers to join open multiple 
        employer plans.'' \2\
---------------------------------------------------------------------------
    \2\ The Savings & Retirement Bipartisan Work Group Report, July 
2015, at page 6.

    For the small employer market, multiple employer plans would enable 
small businesses to participate in a single, professionally 
administered plan that affords them economies of scale and minimal 
fiduciary responsibility. The plans would provide employees of those 
organizations the same opportunities to invest for retirement that 
employees of large companies already enjoy on a near universal basis 
via 401(k)s and similar defined contribution plans.
             small business retirement survey by prudential
    In an effort to better understand why small businesses do not offer 
retirement plans, Prudential Retirement conducted a survey of more than 
850 small employers during the months of March and April 2015. All the 
survey participants were business owners who do not offer retirement 
plans today, and who have the responsibility for making decisions on 
employee benefits. Included in the survey were small businesses of 
between 3 and 500 employees.
    When asked un-prompted why they don't offer retirement plans for 
their employees, almost 50 percent cited cost as the concern. When 
prompted with a list of reasons, the top reasons why they do not 
sponsor plans include cost, administrative burden and hassle, and 
fiduciary concerns. Importantly 29 percent indicated a lack of 
understanding as to how retirement plans work.
    Reflecting these concerns, baseline interest in offering a 
retirement plan is low. Only 14 percent of small business respondents 
are likely to consider offering a plan over the next 5 years. However, 
if provided an opportunity to offer a plan with little or no cost, most 
responsibility assumed by an independent trustee, and minimal retained 
responsibility beyond forwarding contributions, the rate of interest 
increases by more than 250 percent. Also, almost half indicated support 
for legislation that would make it easier for small businesses to 
provide retirement plans to their employees, with only 17 percent 
saying legislation is not needed.
    Finally, the survey measured employers' attitudes toward offering 
retirement plans. Attitudes varied widely, highlighting the differing 
mindsets of small employers. We found that about \1/3\ of employers had 
the most positive attitudes: That saving for retirement is very 
important; that programs to make it easier are very important,; and, 
that they have a key role in the process. For the \1/3\ of employers 
with the most positive attitudes, almost 70 percent were likely to 
consider offering a plan with little or no cost and minimal 
responsibility.
    Given small businesses employ over 55 million workers, capitalizing 
on employer interest by offering plans which have little or no cost to 
employers, and minimal employer responsibility, could be an important 
step toward reducing the retirement coverage gap. At Prudential, we 
believe multiple employer plans can be part of the solution, but there 
are challenges--challenges to expanding MEP sponsorship and challenges 
to expanding MEP participation.
       challenges to expanding mep sponsorship and participation
    Expanding access to multiple employer plans for small businesses 
and their employees will require Federal legislative and/or regulatory 
action. The challenges, in our view, are concentrated in four areas:

    Tax Law--Section 413(c) of the Internal Revenue Code already 
recognizes plans maintained by more than one unrelated employer. 
However, it imposes a number of requirements on these plans as a 
condition of maintaining their tax-qualified status. As currently 
interpreted, some of these requirements, such as nondiscrimination 
rules, are applied on an employer-by-employer basis rather than a plan 
basis. This means that just one non-compliant employer can jeopardize 
the tax status of the entire plan, putting all employers at risk. This 
barrier is often referred to as the ``one bad apple'' rule.
    ERISA--For purposes of ERISA, the Department of Labor treats as a 
single retirement plan only those multiple employer plans that are 
sponsored by a ``cognizable, bona fide group or association of 
employers'' acting in the interest of its members. It also requires 
that this group of employers have a ``commonality of interest,'' such 
as operating in the same industry, and exercise either direct or 
indirect control over the plan. Taken together these conditions 
significantly limit the ability of other organizations, such as a local 
Chamber of Commerce, to sponsor a MEP for a diverse population of small 
employers.
    Fiduciary Liability--Some employers--particularly small employers--
shy away from offering a plan because they are concerned about the 
responsibilities and liabilities they might assume under ERISA as plan 
fiduciaries. The uptick in retirement plan litigation relating to plan 
fees and other factors has only exacerbated their concerns.
    Enforcement--The Labor Department has expressed concern that 
expanding the number of ``open'' multiple employer plans--those 
sponsored by any entity other than a ``bona fide group or association 
of employer''--could allow promoters of such plans to take advantage of 
small employers and their employees under the guise of offering a low 
cost, no liability plan.\3\
---------------------------------------------------------------------------
    \3\ Letter from Phyllis Borzi to Charles Jezeck, reprinted in 
``Private Sector Pensions, Federal Agencies Should Collect Data and 
Coordinate Oversight of Multiple Employer Plans,'' a GAO report to 
Chairman, Committee on Health, Education, Labor, and Pensions, U.S. 
Senate, September 2012, at page 44.
---------------------------------------------------------------------------
         facilitating sponsorship of and participation in meps
    To make multiple employer plans more accessible to small 
businesses, lawmakers and regulators will need to take action on 
several fronts.
Tax Law
    First, Treasury and IRS or Congress needs to clarify tax law so 
that any adverse consequences of not complying with the applicable tax 
qualification requirements for MEPs will be limited to the noncompliant 
employer, rather the entire plan and rest of its participating 
employers.
ERISA
    Second, the Department of Labor or Congress needs to modify the 
ERISA requirements to allow a broader array of entities, organizations 
or associations to sponsor MEPs, subject to conditions that will ensure 
plans comply with ERISA's fiduciary requirements and minimize risk to 
plan sponsors and their employees. These conditions might include the 
following:

     The sponsor must exist for bona fide purposes unrelated to 
the sponsoring of a retirement plan.
     The documents of the plan must identify the person(s) who 
will serve as the named fiduciary of the plan. That person(s) must 
acknowledge in writing joint and several liability for controlling and 
managing the operation and administration of the plan.
     The documents of the plan must identify the trustee(s) of 
the plan responsible for the management and control of the plan's 
assets and for the prudent collection of contributions to the plan.
     The documents of the plan must identify the person(s) who 
will act as the administrator of the plan, responsible for satisfying 
reporting, disclosure, and other statutory obligations.
     The plan and plan officials must maintain a fidelity bond 
in accordance with ERISA section 412.
     The documents of the plan must ensure that participating 
employers will not be subject to unreasonable restrictions, penalties, 
or fees upon ceasing participation in the plan.
     Inasmuch as the retirement coverage gap is most acute 
among smaller employers, participation in these new MEPs should be 
limited to those employers with no more than 500 employees. While it is 
likely that MEPs will appeal principally to employers with 100 or fewer 
employees, establishing the ceiling at 500 employees will give smaller 
employers ample time to grow without having to worry about identifying 
a new retirement savings vehicle for their employees.
Fiduciary Responsibility
    Congress and regulators, in our view, should consider limiting the 
fiduciary responsibility of employers participating in an MEP to the 
prudent selection of the MEP sponsor and remitting timely 
contributions. Similar to the selection of an investment manager under 
ERISA, such a limitation is not intended to eliminate or reduce 
fiduciary responsibility with respect to the management and operation 
of the plan, but rather appropriately allocates those responsibilities 
to professionals best positioned to protect the interest of plan 
participants and beneficiaries.
Enforcement
    Importantly, lawmakers and regulators can help ensure the integrity 
of MEPs in the marketplace by strengthening the protections afforded 
plan sponsors and their employees. We believe they can do this by 
establishing accountability for, and meaningful oversight of, MEPs. 
Appropriate measure could include:

     A requirement that MEP sponsors file a registration 
statement with the Department of Labor in advance of offering a 
retirement plan to employers. The statement could include, among other 
things, the name of the sponsor; the scope of its intended offering in 
terms of its geographic area; representations that all applicable 
conditions--such as those enumerated above--have been satisfied; and 
copies of the plan documents.
     A requirement that the MEP file an annual report, in 
addition to any other information required in its Form 5500 annual 
return/report, an audit and a listing of participating employers.
     An amendment to ERISA giving the Department of Labor 
authority to issue ex parte cease and desist orders, as well as summary 
seizure orders, similar to the authority it already enjoys in 
overseeing multiple employer welfare arrangements (MEWAs).
A Safe Harbor MEP
    To facilitate participation in MEPs and reduce compliance risks for 
small employers, the Department of the Treasury and the Internal 
Revenue Service, in coordination with the Department of Labor, should 
develop a safe-harbor model plan that minimizes the administrative 
complexities and costs of MEPs, is not subject to complex tax-
qualification testing requirements, and enhances the ability of MEPs to 
generate positive retirement outcomes for plan participants.
    A template we would recommend for such a model would include the 
following characteristics:

     A single plan, with a centrally administered trust, 
serving all participating employers.
     Plan participation would be limited to employers with no 
more than 500 employees.
     Specifically identified persons to serve as the named 
fiduciary, trustee(s), and administrator.
     Funded by employee contributions, with employer 
contributions permitted, but not required.
     Automatic enrollment of employees at a rate equal to 6 
percent of pay, with employees eligible to opt out or select an 
alternative contribution rate.
     Automatic escalation of employee contributions to 10 
percent of pay, in annual 1 percent increments, with employee 
opportunity to opt out.
     Hardship withdrawals in accordance with IRS rules, but no 
participant loans.
     A broad range of diversified investment options.
     In the absence of investment direction, contributions 
would be defaulted into a preservation of principal investment option 
for the first 4 years and, thereafter, into a qualified default 
investment alternative (QDIA) in accordance with Labor Department 
standards.
     At least one investment or distribution option that 
includes a lifetime income product.

    We believe that use of a model plan, similar to the above, should 
avoid the need for complex and costly nondiscrimination testing and, 
through reduced administrative costs, increase retirement savings for 
plan participants.
                          meps--a ``win win''
    We--at Prudential--see MEPs as a ``win'' for both employees and 
employers.
    MEPs will afford employees the opportunity for better retirement 
outcomes. A properly designed MEP will promote savings by employees 
through the use of automatic enrollment and automatic escalation of 
their contributions. MEPs may further encourage appropriate investment 
behavior by providing investment options selected by investment 
professionals, better ensuring that plan participants will be able to 
tailor their portfolio to their investment goals and tolerance for 
risk.
    Unlike IRAs, MEPs offer employees the potential for an employer 
match and the opportunity to save for retirement at levels more 
appropriate for meaningful retirement savings ($18,000 per year, as 
compared to $5,500 per year for 2015 and 2016), as well as access to 
institutionally priced investments. MEP participants would further 
benefit from having their plan's fiduciary and administrative 
responsibilities discharged by plan and investment professionals, 
thereby enhancing the fiduciary and other protections afforded by 
Federal law--the Employee Retirement Income Security Act (ERISA).
    Small businesses will be better positioned to compete for talent. 
For employers, MEPs represent an opportunity to offer employees a 
meaningful opportunity to save for retirement in a tax-advantaged plan, 
without the administrative costs and fiduciary risks attendant to 
maintaining a stand-alone retirement plan. Moreover, surveys 
consistently show that workers consider retirement savings plans a 
valued employee benefit. The offering of a retirement plan, therefore, 
can increase an employer's ability to attract and retain a high quality 
workforce and, thereby, be more competitive.
                               conclusion
    While multiple employer plans may not be the only solution to 
closing the retirement coverage gap, we believe it is an important one 
and one that should be available to substantially more employers than 
is the case today. For a more comprehensive discussion of MEPs and our 
proposals, we have a copy of our recent white paper, Multiple Employer 
Plans--Expanding Retirement Savings Opportunities, for your 
consideration. (Available through our website at: http://
research.prudential
.com/documents/rp/mep_paper_final_2015.pdf).
    With the support from benefits professionals, consumer groups and 
Members of Congress, we believe the climate is right for expanding both 
the sponsorship of and participation in multiple employer plans and, 
with 10,000 individuals reaching retirement age everyday in this 
country, the time for action is now.
    We thank Chairman Enzi, Ranking Member Sanders and members of the 
committee for their focus on the challenges facing small businesses in 
offering retirement savings opportunities to their employees. We look 
forward to working with members of this committee and other interested 
persons in expanding retirement savings opportunities through MEPs.

    Senator Enzi. Thank you.
    Mr. Certner.

STATEMENT OF DAVID CERTNER, LEGISLATIVE COUNSEL AND LEGISLATIVE 
             POLICY DIRECTOR, AARP, WASHINGTON, DC

    Mr. Certner. Thank you, Mr. Chairman and members of the 
committee. My name is David Certner. I am Legislative Counsel 
and Policy Director for AARP. Thank you for inviting us today.
    Only about half of the workforce has access to a retirement 
plan at work, leaving approximately 55 million Americans 
without the ability to save for retirement. Many of these work 
for small employers. We know that people will take advantage of 
the opportunity to save at work. A retirement plan makes it 15 
times more likely that someone will save.
    For these reasons, AARP has long supported expanding 
employer sponsorship of retirement savings vehicles. The real 
challenge, especially for small employers, is to make it as 
easy and as automatic as possible to have plan coverage.
    As an aside, we're currently engaged with many State and 
local officials on what can be done at the State level to 
essentially do pooling of small employers. Several states have 
already acted, and we have about 20 states that are considering 
action.
    While we support these State efforts, we're also committed 
to working at all levels and many different models to see what 
we can do to expand coverage. At the Federal level, we are open 
to developing open MEP arrangements. In many ways, MEPs have 
very similar elements to the work that's going on at the State 
level, and we believe that both efforts have merit and actually 
complement each other.
    I'm going to speak from the consumer perspective. For the 
individual who is trying to invest, what they want is 
essentially a licensed and qualified entity that's going to be 
acting in their interest. Several models, as has been noted, 
have been proposed in Congress, and we think we can adopt some 
of the best features of these proposals.
    For small employers, as a first rule, we want to keep it 
simple. We understand that Congress should avoid burdening 
small employers with too many requirements, and we really 
shouldn't expect them to become retirement experts. There are 
some employers who do want to take on this responsibility, but 
for those who don't, we should provide automated options in 
which employers or the payroll service providers simply 
transmit the payroll contributions to a designated and legally 
responsible entity.
    We believe the open MEP models under consideration can work 
if they include the right standards. AARP believes that there 
are some essential features that an open MEP should include. 
Employer and multi-employer plan duties really should be clear, 
and that's really key. Employers or the MEP must be under a 
duty to, for example, timely transmit payroll contributions, 
distribute material, prudently select investments and other 
providers, and periodically monitor and review performance.
    We think MEPs should also meet certain minimum 
qualification requirements and standards that would include 
licensing, bonding, reserve and insurance requirements. The 
MEPs should also agree to act in a fiduciary capacity, and all 
moneys that are transmitted need to be held in trust and timely 
transmitted either to investments or to pay benefits to 
participants.
    We think the plans should also include basic consumer 
safeguards. Consumers need access to understandable 
information, either provided by the MEP or the participating 
employer. The plans need trained staff to handle questions, 
including any consumer complaints.
    What's really fundamental here is that we need to be clear 
which entity is going to be responsible for these things. Is it 
going to be the small employer, or is it going to be the MEP? 
For example, who's going to file the plan documents and the 
financial statements? We also want to make sure that the 
Department of Labor has enforcement authority and can audit 
these MEPs.
    Most of these protections that I've talked about today 
already exist in ERISA. What Congress needs to do in terms of 
helping to encourage these kinds of plans is to really specify 
which functions remain the responsibility of the small employer 
and which ones are the responsibility of the MEP.
    Obviously, the easier we make it for the small employer, 
the more likely they are to use a MEP or some similar option. 
In addition, we want to ensure that the MEPs are required to 
act in the best interest of the workers as well as the 
employers, and that, we think, will lead to greater overall 
retirement security. In short, we want Congress to help 
establish the framework to ensure that the participants benefit 
from the economies of scale derived from, as you say, the 
pooled investments and group pricing that we get.
    We know that meaningful retirement security is still a 
challenge, particularly for small employers, and we think there 
are many promising approaches. We look forward to working with 
the committee to expand retirement coverage and adequacy to the 
tens of millions of Americans who need access to retirement 
savings in the workplace.
    Thank you.
    [The prepared statement of Mr. Certner follows:]
                  Prepared Statement of David Certner
    Chairman Enzi, Ranking Member Sanders, and other members of the 
subcommittee, thank you for inviting me to speak to you today on behalf 
of AARP.
    AARP is the Nation's largest nonprofit nonpartisan organization 
representing the interests of almost 38 million Americans age 50 and 
older. We share many of the same concerns as other speakers here today 
on the need to expand pension coverage--particularly for small 
employers--and we have been working for decades, at both the Federal 
and State levels, to improve and expand coverage under the private 
retirement system.
    It goes without saying that we need a strong and adequate 
retirement system for when we no longer work and need sufficient income 
to live in retirement. Social Security provides a strong base of 
income, but Social Security was never intended to be the sole source of 
retirement income.
    According to the Center for Retirement Research, access to a 
workplace retirement plan is second only to having a job as the most 
important factor in helping families build retirement savings in 
addition to Social Security. However, only about half of the workforce 
has access to a retirement plan at work, leaving approximately 55 
million Americans without the ability to save for retirement at work.
    We know that people will take advantage of the opportunity to save 
for retirement at work. Having access to a workplace retirement plan 
makes workers 15 times more likely to save. When employees are offered 
a plan, about 70 percent voluntarily participate. Even better, when 
workers are automatically enrolled in a plan, with the option to opt 
out, participation jumps to about 90 percent.
    For these reasons, AARP has long supported encouraging or requiring 
employer sponsorship of retirement savings vehicles. We have supported 
legislative proposals for Automatic Individual Retirement Accounts 
(IRAs) for employers that do not offer any retirement plan. We also 
have supported tax credits to encourage small employers to set up 
plans, including for administrative costs and employer contributions. 
And we have supported credits to help lower income workers save, such 
as the Savers credit. We also believe that proposals such as the 
President's MyRA initiative and opening retirement plans to part-time 
workers are worthy of legislative support.
    The problem is not that there are not enough types of retirement 
plans. If anything, the many types of plans--including defined benefit, 
401(k), SEPs, Simples, payroll deduction IRAs, etc--can make it 
confusing and lead to inertia among employers.
    The real challenge is to make it as easy, and as automatic, for 
employers and employees to have retirement plan coverage. Small 
employers in particular are focused on keeping their doors open; they 
do not have human resource departments or in-house plan experts to call 
on. It is unreasonable to ask over five million small employers to 
become retirement experts.
    To effectively tackle financial insecurity in retirement, we should 
continue to learn from the growing body of behavioral economics 
research, including the demonstrated power of automatic plan designs, 
such as automatic enrollment and escalation. We have also learned the 
importance of professionally managed, diversified, and low-cost 
investment portfolios to overcome our personal biases, including 
tendencies to buy high and sell low, failure to re-balance and lack of 
portfolio diversification, and even the inability to make decisions if 
presented with too many choices.
    AARP continues to work at both the national and State level to make 
it easier to have retirement coverage for employers and employees. 
While we believe there are ongoing opportunities at the national level, 
we are also engaging interested State and local leaders to consider 
what can be done at the State level.
    Increasingly, States are realizing that if retired individuals do 
not have adequate income, they are likely to be a burden on State 
resources such as housing, food, and medical care. For example, 
according to a recent Utah study, the total cost to taxpayers for new 
retirees in that State will top $3.7 billion over the next 15 years. 
The study also found that 18 percent of retirees in the next 15 years 
will retire with more debt than savings. Failure to address the 
retirement savings shortfall will translate into more costs for 
taxpayers.
    Several States have already enacted statewide legislative reforms, 
including Illinois, Oregon and Washington. Massachusetts passed a law 
providing a plan for non-profit organizations. California passed 
legislation to create a program that is under development, with a vote 
on a finalized plan in 2016. Utah and Virginia passed study bills, with 
overwhelming bipartisan support, to examine what their State 
legislatures can do to avert the retirement crisis. Minnesota and 
Connecticut have both appropriated funds to conduct feasibility studies 
as a precursor to setting up State-facilitated savings plans. Over a 
dozen other States are actively considering similar types of laws or 
feasibility studies to determine how to do so.
    While AARP has strongly supported these State efforts, we support 
and are committed to working at all levels on many different models to 
expand coverage. At the Federal level, we are open to and willing to 
work with Congress and other stakeholders on developing what is being 
called an open multiple-employer pension (MEP) model. In many ways open 
MEPs have many elements in common with ongoing State work, and we 
believe both efforts have merit and can complement each other. With 
both efforts, we also need to make sure that the model works not only 
for individuals saving for retirement, but for employers, private 
providers and government.
    For consumers, the key is to make sure there is a licensed and 
fully qualified entity that is acting in their interest to offer them 
high performing low-cost investment options. Several models have been 
proposed, and we urge Congress to adopt the best features of these 
proposals. For example, some have proposed empowering the Department of 
Labor (DoL) to establish criteria for these entities or to develop a 
model MEP. Others have not delegated design authority to DOL, but 
rather proposed that entities be required to register with DOL and 
undertake some or all of their activities as fiduciaries--i.e., legally 
required to act prudently and solely on behalf of covered workers.
    For small employers, we must keep it simple. Congress should avoid 
burdening employers with too many requirements and not expect them to 
become retirement experts. Employers who want to offer and design their 
own plans and legally oversee them should be able to do so. For 
employers who do not wish to take on the responsibility of 
administering a retirement plan, we should also provide automated 
options in which employers--or their payroll service providers--simply 
transmit payroll contributions to a designated legally responsible 
entity.
    We believe the open MEP models under consideration can be made to 
work with the right development and bipartisan stakeholder input. We 
stand ready to work with the committee to help move a proposal forward. 
AARP believes any proposal in this area should include specific 
essential features and protections to ensure all parties are fairly 
protected:

    1. Employer and multiple employer plan duties should be clear. 
Employers or the MEP must be under a duty to timely transmit payroll 
contributions, distribute materials, prudently select investments and 
other providers, and periodically monitor and review provider 
performance. For example, in the health plan area, we have seen 
problems where an employer fails to timely transmit contributions. In 
order to avoid the issues that arose with failed employer contributions 
to multiple employer welfare arrangements (MEWAs), clear rules are 
needed to specify the employer and plan duties, including when and how 
the MEP and DOL need to act if parties do not act as required.
    Employers also should continue to comply with ERISA's requirements 
for fair participation of all qualified employees. Congress should 
decide if all workers will be vested immediately in any employer 
contributions--which AARP believes is the right standard to maximize 
retirement savings--or whether employers can impose individual employer 
vesting requirements.
    2. Multiple employer plans should meet minimum qualification 
requirements. The committee or DOL should establish the licensing, 
bonding, reserve, and insurance requirements that plans must meet. We 
also believe the MEP should agree to act in a fiduciary capacity. All 
moneys should be held in trust and timely transmitted for investment 
and to pay benefits to participants. Plans should prudently select and 
monitor all investment options--either through a transparent internal 
process or an external competition for appropriate retirement 
investments. The potential advantage of MEPs is the ability to lower 
costs for employers and participants through pooled size and bargaining 
power. However, Congress should establish the framework to ensure that 
participants benefit from the economies of scale derived from pooled 
investments and group pricing, comparable to similar groups in the 
marketplace.
    3. Plans should include consumer standards and safeguards. 
Consumers need access to understandable information either provided by 
the MEP or the participating employer. Plans need trained staff to 
handle consumer questions and grievances, with the consumer right to 
either file a complaint with DOL or seek court redress.
    There should be clear rules as to which entity, the employer or the 
MEP, will file plan documents and financial statements with 
participants and necessary government agencies. Participants and the 
public have a right to know all employer members of a MEP in order to 
track their benefit eligibility. The Department of Labor should have 
clear authority to audit any MEP and ensure it is in compliance with 
all legal requirements.

    In addition to the above features, we also urge the committee to 
consider encouraging retirement plans to pay benefits in the form of 
lifetime income so that retirees are protected from outliving their 
retirement savings. Workers covered by any retirement plan should also 
be encouraged to retain or roll-over their savings to another 
retirement vehicle when they change jobs or retire. Spousal consent 
features will also help to enhance women's retirement security.
    Most of these consumer protections currently exist in ERISA, but 
Congress needs to specify which functions remains the responsibility of 
the small employer and which will be carried out by the MEP. The easier 
we make it for small employers, the more likely they are to use a MEP 
or similar option. In addition, ensuring that MEPs are required to act 
in the best interests of workers and employers will help improve 
overall retirement security.
    Meaningfully expanding retirement security, particularly for 
employees of small employers, remains a critical challenge for the 
Congress. We believe there are many promising ideas worthy of 
consideration. We look forward to working with the committee on the 
ideas discussed today and other proposals to expand retirement coverage 
and adequacy to the tens of millions of Americans who need access to 
workplace retirement savings vehicles.
    Thank you for this opportunity to share AARP's views.

    Senator Enzi. Thank you.
    That's a lot of great information in a very short period of 
time. You were all very concise, and I appreciate that. We'll 
probably need to go back over some of that in order to actually 
absorb it now, and that's what I'd like for us to do. I'll ask 
a couple of questions here, and then if Senator Whitehouse 
wants to ask a couple, we'll do that, and then we'll just kind 
of open it up for general discussion among you and among us.
    I noted that most of you mentioned that we have a lot of 
businesses that aren't covered, about 50 percent, and that was 
56 million people. I'm not sure which. It's a lot, anyway, and 
what we'd like to do is to get that 50 percent to have some 
incentive to do that sort of thing and not a fear of doing it, 
so that more people are covered.
    You gave some policy recommendations regarding the 
expansion, and one of the best ways that we at the Federal 
level can help is to give those people access to plans. How do 
you recommend that Congress makes it easier for the MEPs, 
specifically open MEPs, to grow and make it easier for small 
businesses to offer retirement coverage for their employees?
    If somebody wants to jump in, just stand your name card up, 
and we'll know that you want to say something.
    Mr. Kalamarides.
    Mr. Kalamarides. As I mentioned in my opening comments, I 
believe Congress should take five sets of actions, and I'll 
walk through them in a little bit more detail than I did in my 
summary.
    Senator Enzi. Good.
    Mr. Kalamarides. To reduce the barriers in tax law, ERISA, 
fiduciary responsibilities, and DOL enforcement. I want to 
agree with many of the things that David also described in his 
opening comments.
    I believe that Congress should pass a bill that allows 
unaffiliated businesses with separate employee groups to pool 
their purchasing power. That means removing the commonality of 
interest current requirement on MEPs, that is, fundamentally 
allow open MEPs.
    The second piece is to reduce the liability of small 
business owners, removing the joint and several liability and 
just make it several liability, and not eliminating fiduciary 
responsibility, but transferring it to an independent 
fiduciary, a board, for that plan, and make the small business 
owner still responsible for the timely transmittal of 
contributions and the distribution of any education that the 
MEP isn't distributing directly to the participants.
    We also believe, No. 3, that the IRS and the Labor 
Department should develop a model plan design. A model plan 
design will allow providers and MEPs to compete based on price, 
investment performance, and service, and not based on plan 
design.
    Some of the best practices of plan design that could be 
included are: funded by employee contributions at 401(k) 
limits; automatic enrollment at 6 percent, escalating to 10; 
employer contributions permitted but not required; no loans; 
hardships only under IRS safe harbor contributions; a broad 
range of diversified investment options; investments into a 
principal protection product to create a beginning savings pool 
and then investments into a QDIA; lifetime-income solutions.
    We think because of all that and that safe harbor approach, 
discrimination testing is probably not required. We do think 
the Department of Labor should have enforcement capability, 
such as requiring MEPs to register; requiring them to report on 
an annual basis, including audits and a list of all the 
participating employers; and cease and desist powers.
    We also think that the Lifetime Income Disclosure Act is 
really critical to help enable financial security. There are 
other simplification items that we might want to talk about 
later that could also be included.
    Senator Enzi. Anyone else want to comment on that?
    Mr. Certner.
    Mr. Certner. I agree with much of what my colleague here 
was talking about. I just want to go back to what is critical. 
We know that we only have about 50 percent coverage in this 
country among employers, and that really has not changed in the 
last 40 years. We have not really moved the dial in terms of 
improving pension coverage. We've changed the type of pensions 
people have dramatically, but on actual coverage itself we 
haven't moved, and most of it is in the small employer arena.
    Moving to these pooling arrangements, we think, makes a lot 
of sense. We want to just make sure that the people who are 
being covered by these plans are going to be covered and secure 
and know that the monies they transmit are going to be secure, 
and that they're going to get good investments and good 
oversight and good trustee responsibility, essentially.
    We also know that the small employer is running a business. 
They don't really want to run a pension plan. They're not 
benefit experts. If they're not going to have the 
responsibility, and you're going to shift that responsibility, 
that's fine. We want to make sure that responsibility is 
shifted somewhere. We don't want to end up with a situation 
where nobody is taking responsibility for the operation of a 
plan.
    We think the employer will have certain responsibilities, 
such as making sure the money gets transmitted and making sure 
that they pick, for example--select a proper MEP. At that 
point, you could transfer that fiduciary responsibility over to 
the MEP to be able to handle many of the things that I cited 
before in terms of monitoring investments, selecting 
investments, getting information out to individuals.
    We think that can make a lot of sense, and we can make sure 
that people can take advantage of the pooling arrangements, and 
that will work both for the small employer and for the 
individuals who are covered by the plan.
    Senator Enzi. Mr. Schoening.
    Mr. Schoening. It's amazing how much consensus that we see 
on this idea, that we have a proposal from the bipartisan tax 
working group, from the ERISA advisory council, from various 
offices in Congress, as well as industry and organizational 
groups.
    I think we agree very wholeheartedly with the design that 
was laid out in Prudential's white paper, specifically the 
model plan design. We feel the way that it's been laid out 
provides the greatest opportunity to appeal to the broadest set 
of small employers. A small employer can participate, even if 
they don't have the financial means to make an employer 
contribution.
    By doing so, they are adopting auto features and getting 
their employees automatically enrolled at appropriate default 
deferral levels, as well as escalation features. That's a good 
thing, even better for those small employers and the employees 
of those firms that the employer is willing to commit to that 
match.
    One of the ideas or proposals we put forth is in regards to 
a more streamlined, simplified, auto feature safe harbor that 
particularly uses a match formula that's most used, most 
commonly used by small businesses today, and that's very simply 
a 50 percent match on 6 percent of pay. When we look at our 
client base, that is the most common match formula that we see 
used.
    However, the current safe harbor match formulas do not take 
that into account. For a small employer that wants to benefit 
from the safe harbor that exists today, they have to do two 
things: (1) They have to amend their plan document with a more 
complex match design; and (2) they also have to increase the 
fundamental cost of their match formula.
    Any small business that's envisioning using automatic 
enrollment is going to have a cost increase associated with 
their match, because they'll have more participants enrolling 
in the plan, and they'll be matching those deferrals that are 
made.
    It's very important that, as we lay out a safe harbor match 
formula, that that formula fundamentally doesn't increase cost 
as well. We hope that by part of our strategy, which is more 
targeted tax credits for small employers that adopt those 
progressive features, that they can offset some of that cost of 
those new participants entering the plan. Again, their 
fundamental match formula cost will not increase.
    Senator Enzi. Mr. Anderson.
    Mr. Anderson. I wanted to go back over a couple of more 
specific points that the Chamber wanted to make. The advantages 
of MEPs are the ability for small businesses, such as myself 
and others, to pool their resources together, to provide 
centralized payroll, one investment lineup, and one annual 
report and audit for the entire plan.
    The significant disadvantages to participating currently in 
a MEP are, as has been mentioned before, the joint liability 
for qualification failures of every other employee in the plan, 
and that is something that turns a lot of employers off.
    Changing several of the rules regarding MEPs could 
significantly expand their use, and we recommend the following 
changes: the implementation of safe harbors for adopting 
employees that immunizes them from noncompliant employers, and 
to simplify the MEP reporting and disclosure obligations under 
ERISA, clarifying that employer commonality is not required to 
establish the MEP.
    Further, we've got a couple of suggestions. The first is to 
enhance the small business tax credit. The current credit 
allows for a maximum of $500 for the first 3 years of a plan, 
and the credit is too small and too short-lived to change 
behavior. Lawmakers should consider expanding the credit and 
making it refundable to increase their incentive for small 
businesses to set up plans.
    Second, we recommend giving small business a dedicated 
voice on advisory councils. Advisory councils to the DOL, IRS, 
and PBGC are important sources for input to those agencies, but 
none of them have a seat that is specified for small business.
    An important way to create a voice for small business in 
the discussion of the employer-provided system is to have small 
business representatives on each of these advisory councils. As 
members of these advisory groups, small businesses could work 
within the agencies to continue to find ways to encourage plan 
sponsorship among small business.
    Senator Enzi. Thanks. I've got to help get some of those 
advisory committees started.
    I'd like to go back to Mr. Schoening for just a minute. You 
mentioned, but it was very briefly, that they should be allowed 
to put these in place even if they can't afford to have a 
company participation to begin with. Could you elaborate on 
that a little bit more?
    Mr. Schoening. Sure. One of the challenges with small plan 
formation is that we're dealing with small businesses that are 
focused on getting their business up and running. Oftentimes 
there's a tipping point for small businesses as to when they 
have the kind of certainty to be able to commit to an employer 
match contribution in a retirement plan. That comes well before 
the decision to actually establish a retirement plan.
    Again, one of the benefits that we see from the model plan 
design laid out by Prudential is that you could establish one 
single plan, a multiple employer plan, that would allow 
multiple adopting employers that could come in and either 
commit to a match or not if they don't have that capability. It 
gets their employees saving at an appropriate rate, and, 
hopefully, through that kind of gestation process, at some 
point, they find that certainty and they're able to commit to a 
match going forward.
    Senator Enzi. Thank you. One of the frustrations I had when 
I was working with this was that the forms that the Federal 
Government made you fill out every year were used both for 
health insurance and for retirement plans, and the questions 
didn't really match up for both of them. You had to use a 
manual that was about that thick to figure out what the real 
question was, and then when you put an answer down there, it 
looked like a really stupid answer based on what the actual 
question was on the page.
    It would be helpful if we had some of those simplified, as 
well, and the questions being specific for what we're talking 
about. If it's healthcare, it would be a healthcare form, and 
if it's retirement, it would be a retirement form. That would 
eliminate some of the difficulty for small businesses as well.
    Senator Whitehouse, did you have some clarifications you 
wanted or questions you wanted to ask?

                    Statement of Senator Whitehouse

    Senator Whitehouse. Yes, I'd be delighted to, Chairman. 
Thank you very much for hosting this.
    You may know I'm the sponsor of the Automatic IRA Act, 
which moves a lot in this direction. As I understand it, as 
you've all testified, 50 percent of employers don't even offer 
something, and that hasn't moved in eons. We've really got to 
figure out a way to encourage employers to do this.
    My understanding also is that for small employers, 10 or 20 
employee companies, to set up an automatic deduction IRA, for 
instance, is not a big expense. We've had people ask what you 
could do this for, and we've had known companies, big, 
responsible, legitimate companies, say, a $400 setup fee and 
$100 a month. It's not as if we're asking businesses to take on 
a colossal burden by doing this. If you can't afford $400 and 
$100 a month, you're probably not going to afford the nuisance 
of getting involved in a MEP.
    What we'd like to do is to see that it's required for most 
employers to do this, and we set the bar at 10 employees, and 
then there's a tax credit for $750, which should offset the 
cost for smaller employers, actually with a little bit to spare 
in some cases. That's the first piece.
    The second piece is that we learn more and more that people 
behave because of the default setting, not because of free 
choice every time. The numbers that I have are that where the 
default is no retirement plan, you've got to think about it and 
go to H.R. and check the box and sign up on it. Then you get 10 
percent participation, and 90 percent of people do nothing and 
go on toward their future with no retirement plan.
    Switch the default setting so that they've got to go into 
the H.R. department and say, ``No, I don't want this,'' and 
sign off, sign out, and it goes from 10 percent to 90 percent. 
It exactly reverses.
    I don't know why, when that is a cost-free circumstance, we 
wouldn't want to take advantage of that change in behavior from 
the default setting. Anybody who wants to opt out can still opt 
out, but at least you start moving down that road.
    The other thing that's been mentioned is the effect that 
boosting this participation could have on employers who have a 
match obligation. I just want to clarify that under our bill, 
no employer has a match obligation. All they have to do is set 
it up. And, frankly, that could be as easy as a phone call to 
ABP or whoever does their processing.
    I'm totally willing to work with anybody on this, on 
fiduciary liability. It should not be on the employer unless 
the employer has sent the money to their brother-in-law to 
invest in, you know, a lead mine in Peru. If it's a legitimate 
company and an arm's length transaction, then done, and that 
should be pretty easy to police.
    If I could ask--there's a couple of different issues, the 
default issue, the requirement issue, and the fiduciary 
liability positioning--where you'd fall on those. If you think 
that there are improvements that are necessary to the bill, 
we'd be happy to consider them. I really think it's that 
default setting change and making it mandatory that's really 
going to make the big difference if we are going to get 
something significant done here. With that, I leave it to you.
    Mr. Certner has his sign up first.
    Mr. Certner. Thank you for mentioning auto IRA. It's 
certainly an approach that we've endorsed many years ago as a 
way of trying to get at coverage in the small business sector. 
Again, it's another model, another approach. It's one that, as 
I mentioned, we're pursuing, and a number of States are now 
looking at auto IRA approaches at the State level since there's 
been a lack in progress at the Federal level. We think it makes 
a lot of sense.
    We think the automatic features that have been discussed by 
you and some of the panelists here have been an excellent 
addition to the pension system. One of the most powerful forces 
in the universe is inertia, and we should make it work for us 
in terms of improving retirement savings, whether it's getting 
people automatically enrolled or having automatic escalation 
features for when you get in the plan so you're not 
automatically enrolled at a low rate.
    Very often, we see someone automatically enrolled at, say, 
a 3 percent rate, but then they just stay there. That's a 
problem, too. If we can move that up every year, that would 
help get you more toward your goal of retirement income 
security. We very much are supportive of automatic features, 
whether it be in auto IRA or in other places, and we think the 
automatic IRA is an excellent way of improving coverage.
    Senator Whitehouse. Mr. Chairman, I've just been summoned 
to another meeting, so I've got to leave. I would ask that any 
other witness who has any comment on the automatic IRA bill--if 
we could make that a question for the record, and please just 
write to us, and I'd be more than happy to take those into 
consideration. I should add that the bill also has a provision 
requiring the secretaries of Treasury and Labor to simplify the 
MEP process.
    If that set of instructions is not adequate, then please 
look at the end of the bill, those last few pages, and make 
recommendations to us on what further amendments you would 
like.
    This seems to me like a really great opportunity, Mr. 
Chairman, for sensible bipartisan action that, to use Mr. 
Certner's analogy, puts the power of inertia with doing the 
right thing instead of the wrong thing. Thank you.
    Senator Enzi. Thank you for coming.
    Of course, auto enrollment has been proven to do just 
exactly what he said. It reverses the 10 percent that sign up 
to the 90 percent that wind up involved in the system. I'd like 
to see if you have any specific recommendations for how we can 
change the regulatory structure, too.
    Mr. Anderson.
    Mr. Anderson. Thank you, Senator. A couple of things--just 
a point on the last subject about the mandatory plan. Creating 
an auto IRA is something that the Chamber would support--auto 
enrollment in the plan--as long as it's voluntary for the 
employer to establish.
    In a lot of business situations, certain benefits have 
certain meanings to employees and employers that might not 
exist in other markets. As an example--as I'm sure you're 
aware--in a town like Jackson Hole, a great employer benefit 
for an employee might be a free ski pass or a $700 a month 
housing allowance. By creating a mandatory requirement of 
having folks on the retirement plan might not fit for every 
business. A one-size-fits-all is something that the Chamber 
doesn't support.
    As to changing some of the regulations, I would say the 
following. We need to eliminate some top-heavy rules. There are 
top-heavy rules and an unnecessary burden on employers that 
want to offer a 401(k) but are not inclined or unable to 
provide a matching contribution. Moreover, the Chamber believes 
that the top-heavy rules are unnecessary since contributions 
are already subject to average deferral percentage or ADP 
testing to ensure equanimity between highly paid and non-highly 
paid employees.
    Another step policymakers could take is to simplify the 
average deferral percentage test for nondiscrimination. As I 
mentioned earlier, administrative complexity is a great 
deterrent to small business plan sponsorship, especially when 
most small businesses are unlikely to have a human resources 
department that is simply dedicated to providing benefit 
support.
    We also want to streamline requirements and allow for 
greater use of electronic disclosure. Consolidating and 
streamlining certain notice requirements would make the 
retirement plan sponsorship more attractive for all businesses 
and small businesses, in particular. Plan sponsors currently 
and participants are overwhelmed by disclosure requirements. 
This feeling is particularly acute for small businesses that 
don't have the staff to deal with these.
    Most employers that offer retirement plans also offer other 
benefit plans such as healthcare and, as I said, the free ski 
pass program at my business. Employers are also required to 
provide many other notices outside the ERISA context.
    Those are a few of our suggestions for reducing the 
regulatory top-heaviness.
    Senator Enzi. Thank you. Anybody else want to comment?
    Mr. Kalamarides.
    Mr. Kalamarides. Mr. Chairman, there are many regulations 
that we can change to make it easier for small business owners 
to offer retirement plans. I would want to point specifically 
to the Senate Finance Working Committee recommendations, but 
then also to two bills from the 113th Congress that not only 
focused on open MEPs but also talked about simplification: 
Senator Hatch's SAFE Act in Title II, Subtitle B; and Mr. 
Neal's Retirement Plan Simplification Enhancement bill.
    Some of the items--although many of them are worthy, some 
of the items I specifically wanted to note was modifying 
deadline restrictions to make it easier for small businesses to 
file; termination of the top-heavy rules, as my colleague has 
talked about; amendments to safe harbor plans during the year; 
and then also rollover of insurance contracts into IRAs; 
portability of lifetime income; and, importantly, easing 
restrictions on electronic communication. Small business owners 
with a distributed workforce, not all in the same location, use 
electronic communications, and the requirements for paper 
communications can be an undue burden on small businesses.
    Senator Enzi. Mr. Schoening.
    Mr. Schoening. Senator, I would concur with all of those 
thoughts, and I won't repeat them for the interest of time. I 
do want to make one statement, and that's that we cannot 
understate the value of the voluntary retirement system that's 
in place today.
    We know that employees who work for an employer who 
sponsors a retirement plan are more likely to be prepared for 
their retirement. We know that there are benefits to an engaged 
employer at the workplace in terms of providing education, 
communication, and nudges for their employees to participate in 
those plans.
    As we talk about mandated types of options--that's an 
important consideration, specifically when it comes to that 
engagement level of the employer and how they can help incent 
their employees to make the appropriate savings decisions.
    Senator Enzi. Mr. Certner.
    Mr. Certner. I just want to comment on the requirement for 
employers to engage in something like an auto IRA. The reality 
is, Mr. Chairman, that we've been trying to improve pension 
coverage for 40 years under a voluntary system, and we have 
clearly hit a ceiling. We have done some things that have 
helped improve coverage, like automatic enrollment.
    We do know some facts from behavioral economics, which is 
we know that people like to save at work. We know they like to 
have the money taken out of their paycheck before they see it. 
Particularly where there are low and modest incomes, that's the 
best way for them to save.
    You have less than 10 percent of people open up an IRA at 
the end of the year because they don't have $2,000 come April 
when they're filing their taxes to contribute. If you ask them 
to put away a certain amount every paycheck that's taken out of 
their paycheck that they don't see, it's the best way for them 
to save. The success of 401(k) plans has really demonstrated 
that.
    We would like more people to have access to a retirement 
savings plan at work. We currently have a voluntary system. 
It's only reaching 50 percent of the workforce.
    We don't think it's much of a burden to ask an employer to 
be, basically, the payroll transmitter. They already do that 
for many other kinds of payments, for example, payroll taxes, 
unemployment insurance. Particularly, for those who have a 
service provider like an ADP or others, it's just another box 
on the form. We are certainly happy to give a tax cut to 
employers for any additional costs that might be there, which 
we think is minimal.
    This way, you have--the way to reach the worker's paycheck 
directly is at the workplace. If you really want to move the 
needle on getting more retirement savings, you really do have 
to require employers to at least play that role, to be the one 
who's going to transmit the money to somewhere else. It's about 
as minimal a role as you can ask. It's one that they already 
do, and it's really one way we can actually get more savings 
for more people.
    Quite frankly, we're doing a disservice to our population 
when we know that social security is basically the only 
retirement plan that most people have. It's certainly the only 
lifetime protected income plan that they have, and we're going 
to need to supplement social security with additional savings, 
and the way to do it is at the workplace. If we really want to 
move the needle on more coverage and more savings, that would 
be one way to do it.
    Senator Enzi. That would probably get a lot more people 
into it. Usually, we start with a little bit smaller step than 
that, doing a voluntary program and setting it up simple enough 
that it's an incentive plan, and then later it can be looked at 
for being made a mandatory one.
    I don't think that the employers are having a problem with 
doing the withholding for them. They're more worried about the 
other rules, as mentioned, with the top-heavy--when you've got 
a really small organization, it can be pretty easy to violate 
that rule, not intentionally, but practically.
    I know one fellow in Wyoming that started a plan, and he 
did a very substantial match on it. What he wanted to be able 
to do was fire anybody that didn't take him up to the match 
that he was providing, because he said, ``They're too dumb to 
work for me.'' We're not going to allow that, either.
    Those are helpful comments. Does anybody else want to 
comment on that part?
    [No verbal response.]
    The Government Accountability Office report stated that 
potential advantages of the plans are appealing, yet current 
data and information as well as other safeguards will be 
necessary to ensure that interests are protected and promises 
to participants are not broken. The report cites, however, that 
there appears to be a lack of coordination between the IRS and 
the Department of Labor on the different statutory requirements 
related to MEPs.
    While I agree that data is important for the analysis of 
such plans, especially the open MEPs concept, it seems to me 
that the data can't be accurately collected until the IRS and 
the Department of Labor are on the same page on these 
requirements. Do you agree with that assessment? And how best 
can we direct the necessary collection of data to alleviate the 
concerns of the Government Accountability Office, yet not place 
unnecessary burdens on small business so they don't want to do 
the plans?
    Mr. Kalamarides.
    Mr. Kalamarides. Prudential believes that three items are 
helpful in the collection of the data. First, having a model 
plan design takes away a lot of the variability that would 
normally be reported. If each MEP adopts the same model plan 
design, that dramatically simplifies the need for reporting, 
and the IRS and the Department of Labor would agree on what 
that model plan design is when they issue it.
    Second, we believe the multiple employer plan should 
register with the department, and that registration will make 
sure that the marketplace is suitable and appropriate.
    And third, we think that the multiple employer plan should 
file an annual report, not the small businesses, but the 
multiple employer plan sponsor, that independent trust with the 
fiduciary responsibility.
    They should form a 5500, they should file their audit, and 
they should file a list of the participating employers so that 
the Department of Labor knows how to hold those employers 
responsible for the timely remittance of contributions. The 
multiple employer plan should be communicating to the 
Department of Labor if they don't find that someone is 
remitting their contributions on a timely basis.
    Senator Enzi. Mr. Schoening.
    Mr. Schoening. Senator, the protections that are outlined 
in Prudential's paper are there today for ERISA plans, and so 
the concept here is simply applying those to the MEP plan 
sponsor. Those protections work very well today in the single 
employer space, and they can work just as well in the multiple 
employer space.
    When we look at, again, the appeal of the open MEP concept 
to single employers, it provides a simple type of package 
solution that is professionally managed and does not allow or 
does not require that small business to be an ERISA expert. We 
will be holding the MEP plan sponsor accountable, and we'll 
have the appropriate protections and filings associated with 
any ERISA plan focused on that MEP plan sponsor.
    Senator Enzi. Mr. Certner.
    Mr. Certner. I just want to agree with some of those 
comments, Mr. Chairman. We think one way of helping to improve 
coverage is to remove some of the burden off the small 
employer.
    The burden can't just disappear, because those burdens, at 
least the ERISA protections which exist, need to go somewhere 
else. If they're transferred to the MEP, and the MEP is the 
fiduciary acting on behalf of both the small employer and the 
workers in the plan, then we still have those protections in 
place, and yet we've removed the burden and responsibility from 
the employer, as long as we then shift it to another fiduciary 
who will be responsible for all the pieces that are necessary 
in administering the plan.
    We think that can work very well, and we would agree that a 
model plan would also help to do this simply and effectively.
    Senator Enzi. Mr. Anderson.
    Mr. Anderson. Senator, the Chamber thinks it's important 
for regulators to recognize the benefit of electronic delivery. 
In particular, we think it's critical that the Department of 
Labor, Treasury, and the PBGC create a simple, uniform, 
electronic disclosure standard. Beyond that step, we'd like to 
see the Department of Labor change its standard for electronic 
delivery to encourage the use of it and to allow, for the plan 
sponsors who wish, that electronic delivery be the default 
delivery option for those benefit notices.
    The Chamber believes that modernizing the restrictive rules 
on electronic delivery in this manner is a critical element in 
the larger task of reforming the employee benefit plan notice 
and disclosure requirements, and bringing the notification into 
sort of the modern technology is of great value to the 
employers.
    Senator Enzi. Thank you.
    Mr. Certner.
    Mr. Certner. A comment about electronic delivery, because 
we've done a number of surveys on this, both of our members and 
the American public, in general. We agree that there are some 
things, particularly some background informational things, that 
can be done by electronic delivery.
    Particularly, when we're talking about pieces of 
information that are critical to someone's either health or 
pension benefit security, we find that most people like to have 
the paper. They like to get the information. They like to read 
it. They like to be able to put it in a file.
    We're all for encouraging individuals who want to sign up 
for electronic disclosure to do it that way. I know this may 
change in 20 or 30 years, but, at least, still today, we 
certainly find that people like to have the paper. We think 
it's pretty critical that we let people have the paper that 
they need to make the decisions.
    Some people don't have the kind of download speeds that are 
necessary. Some people can't flick back and forth easily 
between a booklet and a pamphlet. People don't necessarily want 
to have the burden or the facility or the cost of printing all 
this down.
    I appreciate that we've made some great strides in 
electronic delivery. At least, all the surveys we've done have 
suggested that people--at least for the important pieces of 
paper that they need to take action on and be informed on in 
terms of their benefit and health security--still want it in 
paper form.
    Senator Enzi. I heard what was said a little differently 
than you did. The way that I heard it is, yes, you ought to be 
able to get some printouts, but the electronic programming 
ought to be there for doing the disclosure so you know you're 
covering all of the disclosure aspects.
    I'm the one that tried to get computers on the floor of the 
U.S. Senate. I've been working on that for 18\1/2\ years. And I 
finally, when I was working the budget, got permission--during 
the budget--to be able to use my computer on the floor, and I 
was pleased that nobody noticed.
    It's relatively simple, if you already have the disclosure, 
if you want a printed copy to hit a couple of buttons and get 
it printed out and be able to give it to the customer or to 
file it in your own records if you want. I'm hoping that the 
emphasis there is on having something standardized that's 
provided to these small employers so they don't have to invent 
the system themselves every time.
    When I first came to the Senate, I thought that we were 
required to enter into blind trusts. I don't have very much in 
the way of assets, but I wanted to make sure I was complying. I 
had to hire an attorney to draw up a whole bunch of papers for 
me, and I put it in a blind trust.
    Then I found out how a blind trust works and that they were 
actually eliminating my money. I thought I'd call and find out 
why, and I found out you can't do that on a blind trust--had to 
answer a lot of questions for having done that.
    I went to them and said,

          ``You know, you ought to have just a uniform form so 
        we don't have to spend $5,000 getting one of these 
        things set up.''

    And they said, ``Well, we wondered why you had one. There 
are only two in the U.S. Senate, you and Jay Rockefeller.''
    [Laughter.]
    I guess I didn't ask the really basic question of whether I 
had to have one or not. That's the problem with some of the 
small employers. They're not sure whether they have to have 
them, and if it's made simple for them, they're much more 
likely to do it. If it's a standardized disclosure that they 
can use that is electronic--because most everybody uses 
computers now, mostly because it's so much easier to keep track 
of payroll that way than it was the old pencil way.
    I'm hoping that's the way that I heard that. I understand 
that some people do like to have paper. There are occasions 
when I'd like to have paper, too. So thank you for making that 
comment.
    Did anybody else want to comment on that one?
    [No verbal response.]
    A key question: What do you think should be the next steps 
for us to do? The best way to get things done is usually in 
steps. We like to do things comprehensive, but comprehensive 
around here usually means so big that nobody will understand 
it. If you can't bring the people along, as well as the 
Senators and the House, we usually wind up with somewhat of a 
mess. We still like to do comprehensive because we can hide 
things in there, and that's not the right way to do it, either.
    Are there any logical steps that you would suggest to us, 
getting from here to there? A lot of the things that you've 
mentioned ought to be able to be done in one bill. If there are 
some other steps that we ought to take, I'd like to know about 
those.
    If there are concerns that you have about some leaping off 
point that's going to draw some opposition--you can tell 
there's not a lot of opposition. This is an organization that's 
designed around controversy. When there isn't a lot of 
controversy, we don't have a lot of attendance, and they rely 
on some of us who have an interest in it to kind of go ahead 
with it, which is what we'll do. I'm interested in how much you 
think we can bite off.
    Mr. Kalamarides.
    Mr. Kalamarides. Mr. Chairman, the next step is putting 
together a bill that includes these items. With this hearing 
and the number of bills that have multiple employer plan 
concepts in them, the Senate Finance Working Group 
recommendation--this being the first recommendation of the 
Senate Finance Working Group--the hearings from 2012 in the 
Senate Aging Committee, this concept is, from our point of 
view, one of the most bipartisan ideas to expand coverage and 
to address this problem. We are seeing that the marketplace is 
really interested in us providing this solution.
    As I mentioned in my opening comments, if we can eliminate 
the barriers of cost, administrative hassle, and this fiduciary 
responsibility and transfer it to a professional, small 
business demand for these retirement plans will increase 250 
percent. The time is now. Consumers and American workers are 
really demanding financial security, and that's why we see some 
States starting to take action.
    We need a Federal solution beyond what the States are 
doing. You're hearing from us broad consensus, and it's time to 
move forward.
    Senator Enzi. You mentioned the Aging Committee had 
hearings in 2012?
    Mr. Kalamarides. The Aging Committee did hearings in 2012 
on small business retirement solutions, and multiple employer 
plans, in particular, were talked about there as well.
    Senator Enzi. Thank you.
    Mr. Schoening.
    Mr. Schoening. Senator, once again, I would very much agree 
with Jamie's comments. We're ready for a legislative package 
that encompasses the ideas that we've discussed. The telling 
point is that there is demand in the marketplace among small 
employers for this type of, particularly, open MEP design.
    We know from our experience working with our existing plan 
sponsors that they want a simpler, more inexpensive safe harbor 
match contribution auto feature arrangement. I would be remiss 
if I didn't mention that we do have a proposal around that 
design and we'll submit that. We have a handout and can submit 
that for the record today.
    These things have all aligned where we have a very baked 
concept with demand in the marketplace, and that would 
translate, as Jamie indicated, to significant increases in 
uptake.
    Senator Enzi. Mr. Certner.
    Mr. Certner. Mr. Chairman, I would agree with that. There 
is some very commonality here of interest, and we can move 
forward. There are a number of proposals on the table. There's 
a number of things that we all talked about today in terms of 
protections, both for the employer and the workers.
    Most of it already exists in current law, and the concern 
only is when you're moving to a new vehicle, to making sure 
that we don't sort of somehow lose enforcement authority for it 
and somebody is responsible for this. I would also urge that 
you also bring in the regulatory agencies to make sure that 
they're comfortable, that they still have the necessary 
enforcement authority to make sure we're protecting both the 
small employer and the workers.
    There's a lot of commonality here moving forward, and as 
long as we can ensure that we maintain the protections that are 
in the law for a good reason, that have helped protect the 
system--as long as we can make sure that we can hold onto those 
protections, we can move forward.
    Senator Enzi. Good. Yes, any bill that I work on, I like to 
get the stakeholders and the regulatory, separately, to talk 
about it. One of the things that I've noted over the years is 
that sometimes it's the very groups that want them that wind up 
opposing because it isn't as comprehensive as they had 
envisioned it to be, and they think it's a waste of time unless 
we do absolutely everything.
    I hope you can help us convince them that sometimes those 
things are what keeps it from happening, too. We'll hope to 
come up with something that can actually be completed and, 
hopefully, with everybody's help, because I'm not sensing this 
huge disagreement, which I'm used to in this committee.
    Several of you mentioned tax credits. Could you elaborate a 
little bit more on how you think those tax credits would work?
    Mr. Schoening.
    Mr. Schoening. Senator, the tax credits that exist today 
for formation of new plans are essentially $500 to offset 
startup costs and administrative costs over a 3-year period, so 
approximately $1,500 total for new businesses starting plans. 
We would like to see an increase in that, and there have been 
proposals suggested by the President and others to increase 
those tax credits for small businesses that make the decision 
to sponsor a retirement plan for the first time.
    We would also like to see a targeted tax credit associated 
with plans that adopt progressive auto features.
    Senator Enzi. Adopt what?
    Mr. Schoening. Progressive auto features.
    Senator Enzi. Oh, yes.
    Mr. Schoening. Specifically, setting an automatic default 
deferral at 6 percent or higher. Senator Whitehouse mentioned 
that default levels are commonly whatever they're set at. 
That's where participants tend to land. We would like to see, 
obviously, more use of those progressive auto features that 
start at a higher level and escalate those individuals to a 
higher level every year, unless they choose to opt out.
    Senator Enzi. Mr. Certner.
    Mr. Certner. Mr. Chairman, we've certainly been supportive 
of tax credits to help small employers start plans, and, 
obviously, we know they come with a cost, and we're, obviously, 
all willing to balance the cost and effectiveness of that.
    I guess I would also encourage you to also look not just at 
perhaps expanding credits for small employers to establish 
plans, but also look at a potential expansion of the saver's 
credit for the individuals who contribute to the plan. This 
helps encourage people, particularly the moderate-income ones, 
to contribute more to the plan and to get a little bit more 
savings for the money that they do contribute.
    Senator Enzi. Mr. Kalamarides.
    Mr. Kalamarides. Yes, and to build on that, a refundable 
saver's credit is especially important in the small business 
environment. As we mentioned earlier, employer matches are 
challenging for some small business owners, and a refundable 
saver's credit into the multiple employer plan would provide 
essentially a match for those low- to moderate-income families. 
That would encourage their participation, encourage their 
savings, and dramatically help their financial security.
    Senator Enzi. Good. I'm also on the Finance Committee, 
where we do the tax extenders almost at the end of the next 
year, and some of these things--the tax extenders ought to be 
done so that they could be actually planned on. Some of these 
things are things that could be done for small--most of the tax 
extenders are for big business, and I've always been looking 
for some things that we could do that would help small business 
out. I appreciate these suggestions.
    Mr. Anderson.
    Mr. Anderson. Senator, we also support raising the tax 
credit. Any tool you can put in the toolbox of a small business 
to help encourage and incentivize their behavior is a help, and 
it's something we should pursue.
    Senator Enzi. Some of the States already let some of these 
things happen. Would a MEP be a better form of retirement 
option for employees than the current State-led efforts? And 
what would be the impact on those State-led efforts if we do a 
national one for small business?
    Mr. Certner.
    Mr. Certner. Mr. Chairman, as I mentioned in my statement, 
there are at least three States that have acted. There's 
another--around 20 or so that are at least looking at some type 
of activity. They're not all looking at one model. They're 
looking at all different kinds of models. We think it's great 
that we have some experimentation, and we can learn from these 
things.
    The MEP, which is similar and complementary to some of 
those models, is certainly another option that should be on the 
table. I'm not sure I could tell you which model would work 
best at this point, and we're happy to have 52 flowers bloom.
    Senator Enzi. If you're familiar with State ones, if you 
would share those with us--and we'll be finding those anyway--
but to see what kind of complementary or adverse situations 
we'd find in those.
    Mr. Kalamarides.
    Mr. Kalamarides. I, too, want to acknowledge that States 
have a shared purpose with us, and that is to expand workplace-
based retirement plans. The States have taken action because 
they see the situation as dire for those 55 million American 
workers at those small businesses.
    Two States have passed bills that are using payroll 
deduction IRAs. Open MEPs, using a 401(k) contribution as we've 
described here, compared to IRAs have differences. The open 
MEPs can offer, as we've described it, protections underneath 
ERISA. The group IRAs would not be covered by ERISA. They would 
have all the fiduciary rules associated with ERISA held and 
responsible by the MEP.
    With an open MEP, employers can--they have the ability to 
offer a match. Employers do not have the ability to offer a 
match in the way the IRA rules are written today. The way the 
401(k) and MEP rules can be written, there can be automatic 
escalation, automatic contributions as well, and that is not 
within the current IRA environment. There's higher contribution 
limits.
    There is, with an open MEP, an ability to pool across 
States. The challenge--while I again want to commend the States 
that are taking action, the challenge is that small business 
activities don't stop at State borders, and we have the 
possibility and the risk of having a patchwork of solutions.
    States are going to continue to act until we do something 
at the Federal level. They are complementary solutions that we 
want to make sure that we continue to encourage to encourage 
financial security. We absolutely need a Federal solution to 
make sure that small business activities that cross State 
boundaries don't have this patchwork of regulations that they 
need to comply with.
    Senator Enzi. Very good.
    Mr. Schoening.
    Mr. Schoening. Senator, in terms of looking at the designs 
that have kind of progressed in the States to more formalized 
proposals, what we see is an auto IRA type of program, and they 
entail a 3 percent default. As Mr. Kalamarides has mentioned, 
when you look at that type of construct versus what we're 
talking about with an open MEP type of design, it certainly 
will not deliver the same levels of retirement outcomes for 
those savers.
    Those programs may seek to allow low-income savers to 
supplement some level of social security, but certainly not 
deliver the benefits of an open multiple employer plan. More of 
a cautionary statement that, again, going back to the power of 
the voluntary employer-sponsored environment, we want to ensure 
that that value persists and that employees benefit from those 
workplace savings programs.
    Senator Enzi. Thank you.
    Mr. Anderson. Senator, having the MEPs available to small 
businesses, particularly in a place where so many businesses 
have such small staffs and limited resources to oversee a plan 
themselves, is just another option for them to have. It 
probably is not the perfect option for every business, but it 
certainly should be on the table.
    Senator Enzi. Thank you. You've all been fantastic. What 
question should I have asked? Does anybody have an additional 
question or a closing comment?
    Mr. Kalamarides.
    Mr. Kalamarides. As a closing comment, I want to thank you, 
Chairman Enzi and Ranking Member Sanders and the members, for 
your focus on expanding retirement savings solutions for small 
businesses through MEPs. As we've talked about, passing open 
MEPs, a bill, is incredibly important, removing the commonality 
of interest requirement, reducing liability of small business 
owners, developing a model plan design, creating enforcement 
capabilities for MEPs for the Department of Labor.
    Including lifetime income solutions is critical. We haven't 
talked about that much. If we're going to create savings for a 
lifetime, but we don't create income for life for those 
individuals, we're doing them a disservice.
    There are a number of bills and considerations, like the 
Lifetime Income Disclosure Act, like some of the simplification 
requirements, some of the simplification suggestions in Mr. 
Neal's and Senator Hatch's bills. We think that those are 
absolutely critical, along with the tax credits that we've been 
talking about. By doing this, we can dramatically improve the 
financial security of those 55 million American workers who 
work at small businesses and especially focus on the women and 
people of color there.
    We're very grateful for your leadership in this effort, Mr. 
Chairman.
    Senator Enzi. Thank you. Any other closing comments?
    Mr. Schoening.
    Mr. Schoening. Chairman, I also thank you for your time and 
attention. Obviously, from my perspective at Principal as well 
as on behalf of the American Benefits Council, this is an 
extremely important issue for us.
    The themes that we discussed today tend to focus on 
simplicity, reduced expense, reduced administrative burden, and 
reduced financial responsibility or liability for small 
businesses. As we look at the package of recommendations that 
we've laid out, including open MEPs, improved safe harbors for 
auto features and tax credits, the combination of those things 
is very powerful in terms of what industry can do in driving 
increased plan adoption in the marketplace.
    If I put my marketing hat on, I like all of those elements, 
and I think I can sell that. I can go out to small businesses, 
and I can get them excited about that.
    Again, thank you for your time and attention, and we look 
forward to working with you as you continue to lead on the 
effort.
    Senator Enzi. Thank you.
    Mr. Certner.
    Mr. Certner. Mr. Chairman, this seems to be a good week, in 
general, for bipartisanship and agreements around here. To the 
extent we can get an agreement on both sides of the aisle to 
move forward in this area, to expand coverage, we think that's 
something that we can get the American public on board with as 
well.
    Senator Enzi. Thank you. I'll see how quietly I can work on 
this. I don't do press.
    Mr. Anderson.
    Mr. Anderson. Senator, thanks very much on behalf of the 
Chamber of Commerce. We appreciate the hard work this committee 
is doing. And as a small business owner and operator, I do, 
too.
    Senator Enzi. Thank you. Thanks for coming all this way.
    Thanks to all of you for your time, and I'll see if others 
have questions they want to throw in. We'll be sharing my 
notes, if my staff can decipher them. If they can't, I can. 
Thank you very much. We appreciate it.
    This hearing is adjourned with the opportunity for 
questions to be submitted until tomorrow night at 6 o'clock.
    [Additional Material follows.]
   Prepared Statement of the American Council of Life Insurers (ACLI)
    The American Council of Life Insurers (ACLI) is pleased to submit 
this statement for the record regarding retirement plan options for 
small businesses. We thank subcommittee Chairman Michael Enzi and 
Ranking Member Bernard Sanders for holding this important roundtable.
    The ACLI is a Washington, DC-based trade association with more than 
300 legal reserve life insurer and fraternal benefit society member 
companies operating in the United States. Its members represent more 
than 90 percent of the assets and premiums of the U.S. life insurance 
and annuity industry. In addition to life insurance, annuities, long-
term care, and disability income insurance, ACLI member companies offer 
insurance contracts and investment products and services to employment-
based retirement plans (including defined benefit pension plans, 
401(k), SIMPLE, SEP, 403(b), and 457(b) plans) and to individuals 
(through individual retirement accounts (IRAs) and annuities). Our 
members also are employer sponsors of retirement plans for their 
employees. As service and product providers, as well as employer 
sponsors, life insurers believe that savings for retirement, managing 
assets throughout retirement, and utilizing financial protection 
products are all critical to Americans' retirement income and financial 
security.
    As leading providers in the small plan formation marketplace,\1\ 
ACLI members agree that a critical challenge in enhancing Americans' 
retirement security is expanding retirement plan coverage among small 
businesses that do not currently offer a stand-alone plan. Only 50 
percent of workers employed in small businesses have access to 
retirement plans. Growing stress on government programs adds to the 
need for greater incentives for these small businesses to start and 
maintain retirement plans.
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    \1\ As part of an employer-provided plan, life insurers provided 
products and services to over one-third plan participants. Small-
employers (99 or fewer employees) overwhelmingly rely on life insurers 
for products and services. Three-fifths of these employees rely on life 
insurer products and services in their employment-based retirement 
plan.
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     acli supports solutions to expand access to workplace savings
    ACLI supports a number of other policies to voluntarily expand 
access to workplace savings. For example, ACLI supports reforms to and 
expansion of the private multiple employer plan (``MEP'') system to 
further encourage and facilitate participation by employers that are 
not prepared to sponsor their own retirement plan.\2\ MEPs can be an 
important tool in reducing the costs and administrative burdens to 
small employers. Under a MEP, many businesses can join together to 
achieve economies of scale and advantages with respect to plan 
administration, and advisory services, making plans much more 
affordable and effectively managed.
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    \2\ See S. 266, the Retirement Security Act of 2015, co-sponsored 
by Senators Collins (R-MA) and Nelson (D-FL) and H.R. 5875, the SAVE 
Act of 2014, co-sponsored by Representatives Kind (D-WI) and Reichert 
(R-WA).
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    In addition to reforming and expanding MEPs, ACLI supports:

     Starter 401(k)s: Small employers should be encouraged to 
offer workplace savings opportunities with simple administrative rules 
and no required employer contributions.\3\
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    \3\ See S. 1270, the SAFE Retirement Act of 2013, sponsored by 
Senator Hatch (R-UT).
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     Auto-IRA: Employers without a retirement savings plan 
should be encouraged to automatically enroll employees into a payroll 
deduct IRA. ``Auto-IRA'' sponsors should receive the same level of 
protection and State wage law preemption offered to employers 
sponsoring ``auto-401(k)s.'' \4\
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    \4\ See H.R. 5875, the SAVE Act of 2014, co-sponsored by 
Representatives Kind (D-WI) and Reichert (R-WA)
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     Start-up credit: Small employers that provide payroll 
deduction IRAs should be eligible for a startup credit to offset the 
employer's initial plan formation and administration expenses.\5\
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    \5\ See S. 1270, the SAFE Retirement Act of 2013, sponsored by 
Senator Hatch (R-UT), H.R. 2117, the Retirement Plan Simplification and 
Enhancement Act of 2013m sponsored by Representative Neal (D-MA), and 
H.R. 5875, the SAVE Act of 2014, co-sponsored by Representatives Kind 
(D-WI) and Reichert (R-WA).
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     SIMPLE IRA and 401(k)s: SIMPLE plans should be made more 
appealing to small businesses. Permitting a higher level of employer 
contribution and improving rollover rules could make the plans more 
valuable to employees.\6\
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    \6\ See H.R. 5875, the SAVE Act of 2014, co-sponsored by 
Representatives Kind (D-WI) and Reichert (R-WA).
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    The Administration took an important step this year in support of 
this effort with the myRA plan. Small businesses without retirement 
plans may offer employees an opportunity to participate in the new ``my 
Retirement Account,'' a Roth IRA backed by Treasury bonds. Offered by 
the U.S. Treasury, myRA provides the option to save for retirement with 
as little as $5 a month.\7\
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    \7\ https://myra.gov.
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  xpansion of state-run retirement programs would lead to significant 
                    costs and liabilities for states
    Recently, some States have proposed government-run retirement 
programs to accommodate those without access to a workplace plan. These 
proposals largely ignore the wide array of products and services 
currently available from financial services providers and would impose 
significant costs and liabilities on States, employers, and taxpayers.
    Currently, many States are already struggling to meet the 
obligations of State employee pension plans and other large government 
programs. New government-run plans for private sector employers would 
add to this burden. A State-run retirement plan would:

     Cause uncertainty for small businesses. Under proposed 
legislation to create new government-run retirement programs, employers 
could face significant operational costs and be subject to fiduciary 
responsibilities. Some legislation mandates employers to participate in 
State plans while other legislation mandates employer contributions to 
State plans.
     Be costly to set up and implement and would create an 
ongoing expense and liability for the State and taxpayers. A study 
authored by the Maryland Supplemental Retirement Plans (MSRP) concluded 
that a State-sponsored voluntary accounts program would require 
significant long-term State expenses. Furthermore, a 2009 Washington 
State report estimated that a State-sponsored basic IRA plan would have 
startup costs of $1.8 million and annual on-going State costs of almost 
$1.4 million.
     Be subject to the Employee Retirement Income Security Act 
(ERISA). All retirement plans for private sector workers must adhere to 
the complex requirements set by Federal law--including ERISA and IRS 
rules. Workers benefit from these important protections, while 
employers and plan sponsors have strict compliance and fiduciary 
responsibilities. Therefore, once a plan is established, a State and 
any participating employer would incur ongoing operational, oversight, 
compliance, and insurance costs associated with these rules.

    With an existing competitive market among private providers of 
portable retirement solutions, State-run retirement plans are 
unnecessary. States should not use funding, regardless of the source, 
to compete with private providers of 401(k) plans, 403(b) plans, 457(b) 
plans, IRAs, and other retirement options.
    ACLI stands ready to assist this subcommittee, and Congress, as it 
further explores retirement plan options for small businesses.
      Response by John J. Kalamarides to Question of Senator Scott
    Mr. Kalamarides, I am happy to see that there is bipartisan support 
for finding retirement solutions in this committee. I am also happy 
there seems to be a consensus that the open multiple employer pension 
(open-MEP) model is one that can work for workers and employers alike. 
You note in your testimony that one of the biggest challenges in MEP 
participation is the amount of liability that employers are subject to 
on account of policies that make them jointly liable for the 
qualification failures of every employer in the MEP.
    Question. Can you expand on the reasons why all employers in an MEP 
should not be held jointly liable and discuss possible solutions to 
this problem? It seems like common sense that an employer should only 
be responsible for their own qualifications.
    Answer. Thank you for the question Senator Scott. The problem of 
shared liability for participating employers in a MEP arises from the 
qualification requirements of the Internal Revenue Code (the Code) 
that, while treating a MEP as a single plan, apply certain compliance 
requirements (such as the nondiscrimination rules of Code section 
401(a)(4) and the minimum coverage rules of Code section 410(b)) on an 
employer-by-employer basis. The risk presented by the application of 
these rules is that noncompliance by one employer could result in the 
disqualification of the MEP, adversely impacting all participating 
employers and their employees. In light of the fact that employers 
participating in a MEP generally will not have any ability to control 
the extent of any other participating employer's compliance efforts, 
holding the MEP and all of its participating employers accountable for 
the potential noncompliant acts of any other employer is a risk many 
employers will not want to assume and should not need to assume.
    Prudential agrees that employers electing to participate in a MEP 
should be accountable only for their own compliance. We believe, as do 
many others, that the rule must be fixed to foster MEP sponsorship and 
participation. In this regard, we note that Senators Hatch, Collins, 
Nelson and Whitehouse have all introduced bills in this or the prior 
Congress that would fix or direct the Department of the Treasury to fix 
the tax qualification rules applicable to MEPs. We also note that, in 
November 2014, Senators Wyden, Stabenow, Cardin and Brown wrote 
Secretary of the Treasury Lew specifically requesting, among other 
things, that the Department help Americans save for retirement by 
fixing this tax qualification problem.
    In terms of possible solutions, we believe the Department of the 
Treasury would benefit from a specific legislative solution, similar to 
that set forth in section 207 of Senator Hatch's bill, S. 1270 (113th 
Congress). We also believe the fixes contained in section 2 of Senators 
Collins' and Nelsons' bill, S. 266 (114th Congress) and in section 5 of 
Senator Whitehouse's bill, S. 245, represent viable approaches to 
addressing this particular impediment to MEP participation.
    We hope this is responsive to your question. We thank you for your 
interest in this important issue. Should you have any further 
questions, please do not hesitate to contact us.

    [Whereupon, at 3:56 p.m., the hearing was adjourned.]

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