PLANSPONSOR - March - April 2023 - 32

30TH ANNIVERSARY | PLAN ACCESS
were a cheaper alternative to the traditional 401(k).
SIMPLEs were the only plans small businesses could offer
at the time that also allowed for an employer match, a key provision,
says Craig Copeland, director, wealth benefits research at
the Employee Benefit Research Institute in Washington, D.C.
They are still used today, but newer options have become more
popular, Copeland says.
The 1996 act also allowed S corporations to create employee
stock ownership plans, as another employee benefit plan, similar
to profit sharing. These plans have had lower takeup, however.
The National Center for Employee Ownership estimates
that, as of 2022, there were roughly 6,500 ESOPs covering
about 14 million participants.
Barbara Delaney, principal in StoneStreet Renaissance, a
Hub International company, in Pearl River, New York, works
with small businesses, the target group for such plans. She
says, based on her personal experience, the interest has been
tepid because many employers are not ready to give up control
of their business.
The Internet and EGTRRA
Catherine Collinson, CEO and president of the Transamerica
Center for Retirement Studies, in Cedar Rapids, Iowa, says the
internet fundamentally revolutionized operating a retirement
plan by the 1990s. Not only did plan accounting move from being
handled on a balance-forward basis, allowing daily valuation of
retirement plans, it also became cheaper and easier for small businesses
to offer a plan, since online solutions were seen as a costeffective
option vs. hiring human resource benefits consultants.
AUTO-PORTABILITY
2004
Department of
Labor issued final
rules describing the
default IRA safe
harbor for plan
fiduciaries tasked
with choosing
default IRA
providers, as well
as the default IRA
investments.
Collinson considers 2001's Economic Growth and Tax
Relief Reconciliation Act critical to expanding access as it offered
a host of changes, including new tax credits for small businesses
to adopt a plan, a hike in employee contribution limits from
$10,000, the introduction of catch-up contributions for people
ages 50 and older and the creation of Roth IRAs.
Significantly, Collinson says, EGTRRA enabled portability
and rollovers, allowing employees to move money between various
types of plans, rather than being restricted to a like plan or an IRA.
The ability to transfer money in this way " is really extraordinary,
because it's something we take for granted now, " she says.
States Seek to Help Savers
Increasing access for small businesses and participation by lowwage
employees has been difficult, Copeland says, as owners of
these businesses often are just trying to stay afloat, and low-wage
workers may not ask their employer to offer a retirement plan.
In an attempt to address these issues, in 2017, Oregon created
the OregonSaves program, a plan that mandates small private
employers to automatically enroll employees, who then make at
least minimum contributions, in a state-run Roth IRA. Since
then, many states have begun working on their own mandated
plan, but just a few have a live program, among them California,
Connecticut and Illinois. Contribution defaults are 5% of salary,
except in Connecticut, where the default is 3%. The states cover
the administrative fees and select investment options.
EBRI looked at
the potential
impact that a nationwide
OregonSaves-type program would have on reducing the national
retirement savings deficit, which it pegs at $3.83 trillion for
2001
Economic Growth
and Tax Relief
Reconciliation Act
mandates that plan
administrators roll
over 401(k) accounts
of under $5,000 to
a default safe harbor
individual retirement
account after
a participant leaves
his employer, ending
the practice of giving
such ex-employees
involuntary cash
payments.
2006
Pension Protection
Act makes
permanent the
provision, first
enacted in 2001,
for automatic
distribution of
small-balance
401(k) accounts.
2014
Retirement Clearinghouse
works with
recordkeepers on the
idea of a network
to search for smallbalance
accounts to
automatically enroll
in new-employer
plans rather than
default IRAs. RCH
files for regulatory
relief to get safe
harbor status to make
auto-portability the
new default option
for small plans.
Source: Retirement Clearinghouse
2019
Department of
Labor issues an
exemption in July
to Retirement
Clearinghouse for
auto-portability,
agreeing to the
request to make
it a default option.
2022
Retirement Clearinghouse,
along
with Alight, Fidelity
Investments and
Vanguard, establish
the Portability
Services Network to
accelerate adoption
of auto-portability to
mitigate cash-outs of
small-balance retirement
plan accounts.
SECURE 2.0 includes
auto-portability in its
legislation.
32 PLANSPONSOR.COM March - April 2023
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PLANSPONSOR - March - April 2023

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