[Congressional Record Volume 152, Number 100 (Wednesday, July 26, 2006)]
[Senate]
[Pages S8261-S8262]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




             SMALL BUSINESS PENSION AND RETIREMENT SAVINGS

  Ms. SNOWE. Mr. President, as chair of the Senate Committee on Small 
Business and Entrepreneurship, I have long believed that it is my 
responsibility and the duty of this Chamber to help small businesses, 
as they are the driver of this Nation's economy, responsible for 
generating approximately 75 percent of net new jobs annually.
  On Monday I introduced legislation that would help to address the 
retirement needs of millions of small business employees. My bill will 
make it easier for small employers to offer pension and 401(k) benefits 
to their employees, who typically have lower retirement savings rates. 
My bill makes it easier for small businesses to offer a ``DB/K plan'' 
which is a combination of a defined benefit plan and a section 401(k) 
plan that is included in a single plan document. Currently, due to 
defined benefit plans' complex rules and high establishment costs, many 
small businesses are unable to set up these types of pension plans for 
their employees. Instead, many small businesses choose to offer less 
complex 401(k) plans that do not require employer contributions and 
offer their employees less guaranteed retirement benefits.
  Many small employers would like to offer defined benefit pension 
plans but are currently hampered by top-heavy rules designed to prevent 
large companies from exclusively offering pensions to key employees. 
These well-meaning regulations prevent most small companies, with a few 
key employees, from providing pension benefits. Legislation that 
establishes DB/K plans would provide small businesses with reasonable 
exemptions from these top-heavy rules. This increased flexibility will 
enable employers to offer employees pension benefits as well as the 
capability to save incrementally in 401(k) type accounts.
  Another advantage of DB/K plans is that they offer employees 
increased flexibility. Employees with DB/K plans would be allowed to 
take their DB/K assets with them when they switch employers. This 
portability would make DB/Ks attractive to many younger employees, who 
tend to change jobs often. Portability is a DB/K innovation not offered 
by traditional defined benefit plans which have vesting periods and 
stop accumulating value when the employee leaves a company. For older 
workers, the main attraction would be the defined benefit feature, 
which provides that at least part of their retirement savings would 
provide a monthly pension check at retirement.
  According to the Employee Benefit Research Institute, only 16 percent 
of employees at companies with 10 workers or fewer and 32 percent of 
employees at companies with 100 employees or fewer participate in their 
company-sponsored retirement savings plans. Comparatively, almost 60 
percent of employees at companies with more

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than 1,000 workers save for retirement through a company sponsored 
plan. Small business workers' low participation rates in retirement 
savings plan are troubling as small businesses employ half of all 
private sector employees. Many policymakers who are closely watching 
the aging of the American population worry that small business owners' 
and their employees' low savings rates will leave this group 
inadequately prepared to pay for their retirements. The creation of DB/
K plans is one option for helping small business owners and their 
employees increase their overall retirement savings.
  Under this legislation each part of the DB/K plan would be subject to 
the present-law rules for defined benefit plans or 401(k) plans, but 
the rules would be simplified. Like 401(k) plans, the proposed DB/Ks 
would allow employees to make pretax contributions to their accounts, 
could include employer matching funds and permit employees to invest 
their 401(k) portion in mutual funds etc. The assets of both components 
of the DB/K plan could be held in a trust covered by a single trust 
instrument. However, the assets of the defined benefit component of the 
plan and the assets of the 401(k) component of the plan must be clearly 
identified and allocated to the appropriate part of the trust.

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