Dawn Rivers Baker, Editor of the subscriber-only newsletter, The Microenterprise Journal, laments that small businesses can expect no pension relief from Congress anytime soon. The latest Senate pension bill leaves out any real reform for small businesses. She writes in the October 3, 2005 edition:
“The proposed legislation seeks to reform the pension system to provide for greater worker protections and more transparency in employer-sponsored pension plans. After the rather spectacular failures of several corporate pension plans in recent years as a result of bankruptcies and corporate accounting scandals, the need for the bill seemed pretty clear.
Since they were working on pension reform anyway, this might also have given lawmakers a golden opportunity to make the pension system more small business friendly, but that is a set of reforms that didn’t happen.
In 2001, the National Small Business Association (NSBA) released an important study entitled The Internal Revenue Code: Unequal Treatment Between Large and Small Firms. Among its findings were several problems for small employers in the nondiscrimination rules governing several kinds of employee benefits plans, including retirement savings plans.
‘Currently, the high and largely-fixed administrative costs for starting and running a 401(k) plan are unaffordable for our smallest businesses,’ said NSBA President Tod McCracken in response to an emailed inquiry. ‘As a consequence, more than two-thirds of individuals working for small businesses have no access to generous federal tax subsidies for retirement savings. SIMPLE plans are much cheaper to administer, but are less generous in the tax subsidy and require mandatory employer outlays.’
The biggest problem for small employers remains the costs of compliance. As with many other kinds of regulations, regulatory compliance costs for small businesses sponsoring pension plans are considerably higher, on a per-employee basis, than they are for larger firms, a finding that was confirmed last month by the SBA’s Office of Advocacy. Advocacy found that the per-participant administrative costs of defined-contribution pension plans are ‘as much as 14 times more for the smallest firms than for their largest counterparts.’”
The NSBA report cited above (download PDF report here) points out in detail how the cards are stacked against small business employers. The smaller the employer, the bigger a bite the pension costs can be.
It’s too bad that Congress can’t do the same thing for pensions that it did for health care. The new Health Savings Accounts and the changes in the income tax laws that allow self-employed health insurance premiums to be 100% deductible, went a long way toward relieving the crushing burden of health insurance in the United States for small businesses and especially the smallest microbusinesses, i.e., the self-employed.