Senators Collins, Warner Propose SIMPLE Plan Modernization Act

Senators Susan Collins, R-Maine, and Mark Warner, D-Virginia, have introduced the SIMPLE Plan Modernization Act to provide greater flexibility and access to small businesses and their employees seeking to use the SIMPLE [savings incentive match plan for employees] plans as a retirement savings option.

“Increasing access to employer-sponsored retirement plans is one way to improve Americans’ financial security, yet approximately two out of every five Mainers in the private sector lack access to a retirement plan at work,” Collins said. “The SIMPLE Plan Modernization Act is a win-win proposition that helps small businesses enhance their employee benefits and assists workers with taking steps to save for retirement.”

Warner added: “Even before the economic crisis caused by the COVID-19 pandemic, many Americans were having trouble saving for retirement. Now, there are even more financial challenges facing our workforce. That’s why I’m proud to introduce this bipartisan legislation to make it easier for small business owners to support their employees in securing their financial future.”

Congress established SIMPLE retirement plans through the Small Business Job Protection Act of 1996 to encourage small businesses to provide their employees with retirement plans. Retirement plans among small employers continue to be scarcer than among medium and large employers, the senators note, adding that traditional 401(k) plans are more expensive to administer.

SIMPLE retirement savings accounts are available to businesses with 100 or fewer employees, as long as they do not have another employer-sponsored retirement plan.

The proposed legislation would increase the contribution limit for SIMPLE plans from $13,500 to $16,500 for employers with up to 25 employees to encourage more small businesses to offer these plans and to allow employees to save more each year on a tax-deferred basis. It would also increase the catch-up limit for companies with fewer than 25 employees from $3,000 to $4,750.

For companies with 26 to 100 employees, the legislation would give them the option of the higher contribution limits and—to encourage them to transition to 401(k)s—increase their SIMPLE plan mandatory employer contribution requirements by 1 percentage point if they elect the higher limits.

The bill would also allow for a reasonable transition period for employers that grow beyond 25 employees and make the limit increases unavailable if the employer has had another defined contribution (DC) plan within the past three years. This is meant to encourage businesses that already have qualified plans to retain them.

It would also modernize SIMPLE plan form filing requirements and modify the transition rules from SIMPLE plans to traditional plans to facilitate and encourage such transitions.

Finally, it would direct the Department of the Treasury to study the use of SIMPLE plans and report findings to Congress, along with any recommendations.

Collins and Warner have previously introduced similar legislation.