RETIREMENT SAVINGS FOR SMALL BUSINESS IS FOCUS OF CAMPAIGN BY THE ADMINISTRATION

WASHINGTON - Vice President Albert Gore Monday encouraged small companies to start pension plans for their workers. The U.S. Department of Labor and the U.S. Small Business Administration (SBA), along with the Department of Treasury, jointly unveiled a five-step plan to help small companies start pension plans for their workers as part of Small Business Week activities.

"There are more than 5 million firms with fewer than 100 workers, but only slightly more than 1 million of these small firms offer pension plans to their employees," said Secretary of Labor Alexis M. Herman. Through our efforts, we not only want to educate employers on the importance of offering a retirement savings plan, but also want to show them that providing these plans can be easier than many business people think."

"Most small businesses want very much to offer retirement benefits in order to attract and retain top-quality employees," said Small Business Administrator Aida Alvarez. "Now that new, simpler retirement plans are available, the SBA will continue working with the Labor Department to let entrepreneurs know how best to accomplish this important goal."

401k Tip

According to Southern California-based (401k) Enginuity (www.401kenginuity.com), twenty-year veteran in developing and running 401(k) administration and 401(k) software and recordkeeping systems, the Internet will be the primary delivery system for 401(k)s by 2007. Many web-based 401(k) plans will run on administration and recordkeeping platforms that plan providers will outsource to 401k specialists and 401k Application Service Providers (ASP).

The advantages of web-based online 401(k) plans are obvious to today's workers, and include use conveniences, real-time monitoring and reporting, and instant re-allocation of their retirement assets. The internet has also dramatically reduce the cost of 401(k) plan administration, saving plan sponsor 50% or more in ongoing fees and costs when compared to the older traditional labor-intensive plans. Outsourcing of 401(k) functions by plan providers will extend the trend towards lower cost, high-quality 401(k) products.

401(k) plan providers of all types, financial institutions including banks, insurance companies, brokerages, mutual fund companies, credit unions, and third-party administrators, are now actively outsourcing 401(k) administration and recordkeeping tasks to 401(k) ASPs --- vendors such as 401k Enginuity, whose sole function is to maintain, updated and supervise software-based 401(k) administration and recordkeeping systems on behalf of plan providers. 401(k) ASP vendors are responsible for all routine day-to-day 401(k) recordkeeping and administration functions, thus allowing the plan providers to reduce internal staff, eliminate the expense and complications of licensing, housing and running hardware and 401(k) administration software in-house. Plan providers can refocus and concentrate their efforts on to the needs of their plan sponsors and plan participants, and rely upon the outsourced ASP 401(k) vendor for the recordkeeping and technical "backbone" supporting providers' Internet-based plans. It is inevitable that some of this 401(k) outsourcing to ASPs will include secondary outsourcing of certain non-critical low-level routine day-to-day tasks to non-US locations, where labor costs are less yet the expertise is abundant.


Secretary Herman and Administrator Alvarez urged small businesses to take the following steps:

*Learn about retirement plan options for small businesses. Call the Pension and Welfare Benefits Administration's (PWBA) Publication Hotline got information at 1-800-998-7542.

* Establish a plan. Consider one of the simpler retirement savings plans such as SIMPLE or SEP.

* For plans with employee contributions, encourage employees to participate and to contribute the maximum amount allowed.

* Make contributions for your employees, or, where appropriate, match your employees' contributions.

* Educate your employees about retirement planning and their investment options.

To assist small businesses in this endeavor, Herman introduced three new department publications describing various simple retirement options for small businesses:

* Simple Retirement Solutions for Small Business þ provides an overview of the retirement options available to small business employers;

* SIMPLE: Savings Incentive Match Plans for Employees of Small Employers þ details savings plans that allow employees to contribute a percentage of their salary each paycheck and permit their employers to match their contributions;

* SEPs: Simplified Employee Pension Plans þ discusses how employers can establish a simplified retirement plan that uses IRAs to hold contributions by using a model agreement developed by the IRS.

All three publications are available through the PWBA Publication Hotline at 1-800-998-7542 and Website at http://www.dol.gov/gov/dol/pwba. 

"Providing people with the information they need to make the necessary choices to save for retirement is part of the agency's larger effort to keep Americans informed about the importance of saving for retirement," said PWBA Assistant Secretary Olena Berg. "Three-fourths of the workers in larger firms have pensions, while less than one-fourth of workers for small businesses are provided with this option. We need to raise that figure." RRP

In 1995, the Department of Labor together with Treasury and various public/private partners launched the Retirement Savings Education Campaign designed to help change the way people think about and act on their retirement needs. As a result of two new campaign partnerships, the American Savings Education Council was formed, now boasting more than 200 members whose mission is to raise public awareness about what is needed to ensure long-term personal financial independence. Additional non-profit websites that include relevant unbiased information about 401k plans include: www.one-person-401k.com 

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