New Bill Aims to Decrease Plan Costs for Small Businesses

Two U.S. senators have introduced bipartisan legislation that aims to reduce retirement plan costs for small businesses by allowing expenses to be reimbursed from plan assets.

The Increasing Small Business Retirement Choices Act, sponsored by Senators Jacky Rosen, D-Nevada, and Tim Scott, R-South Carolina, would amend the Employee Retirement Income Security Act of 1974 to allow small business employers to use retirement plan funds to pay expenses associated with retirement plan design changes. The bill’s backers say this will lower the cost of providing plans for small business owners.

Currently, employers must pay upfront out-of-pocket administrative costs if they want to offer a 401(k) plan or want to change their retirement plan’s design, such as adding automatic enrollment or automatic escalation.

“This bipartisan legislation will ensure small business workers have access to high-quality retirement plan benefits without facing a cost barrier,” Rosen said in a statement. “Removing this bureaucratic red tape and additional cost will make small businesses stronger and provide their workers with the best and most comprehensive retirement plans possible.”

The bill notes that fees are charged to a retirement plan any time its sponsors engage advisers to assist in administering the plans, as those advisers are paid via monthly or annual retainers. It also points out that if a plan sponsor were to inquire about a plan design feature, such as auto-enrollment and auto-reenrollment or auto-escalation, the adviser or other service provider would bill the employer a separate amount that could not be charged back to the plan.

“Because these inquiries result in additional costs, many employers—especially small employers—choose to forgo these incidental plan design features, even when they might generate tremendous benefits for their employees,” the bill’s text states.

The legislation cites the Plan Sponsor Council of America’s 2021 survey of profit-sharing and 401(k) plans that found that only 30.5% of employers with fewer than 50 workers have an auto-enrollment feature in their retirement plan, compared with more than 77% of employers with more than 1,000 workers.

“Innovative plan design features such as automatic enrollment and financial wellness programs have been shown to have a huge impact on American workers’ financial health and retirement security,” Brian Graff, CEO of the American Retirement Association, said in a statement. “The expanded flexibility to cover the expenses associated with these programs means that more employers—and most particularly small business owners—will now be able to bring those advantages to even more workers.”

The bill is the most recent piece of legislation making the rounds in Congress that aims to improve retirement plan savings and participation. Earlier this year, the U.S. House of Representatives passed the Securing a Strong Retirement Act, which aims to increase retirement plan participation while boosting retirement savings. The bipartisan Lifetime Income for Employees Act of 2022, which was introduced in March, would allow retirement plan sponsors to provide annuities as a default option in their DC plans. And the Auto Reenroll Act of 2022, also introduced in March, is intended to help increase workers’ participation in employer-sponsored retirement plans by encouraging retirement plans to automatically reenroll workers.