At a hearing Thursday of the Senate Health, Education, Labor and Pensions Committee on retirement savings, ranking member Senator Lamar Alexander (R-Tn.), asked four expert witnesses to “start from scratch” and offer the committee a simple plan for voluntary savings that employers would be more likely to adopt.
“Because of the problems of complexity, legalese, and liability, there seem to be plenty of opportunities to make it easier for employees to choose plans to adequately save for their retirements,” Senator Alexander said.
Senator Alexander suggested that the plan include automatic enrollment and automatic increases in levels of savings in order to increase the amount of money that employees would have for their retirement – in a case of automatic enrollment or increase the employee would immediately be able to opt-out of the contribution if the employee chose to do so, for whatever reason.
He said that Social Security and the current number of private savings plans are not going to be enough to provide adequate retirement for many Americans --- just 68 percent of private-sector workers are employed at establishments that offer one or more retirement plans, according to the National Compensation Survey from March 2012.
“More and more Americans are becoming independent contractors or part-time employees and are not working for a company that will offer the plans,” he said.
He cautioned against new mandates on businesses saying, “small businesses are struggling with the cost of the health care law and cannot tolerate any new mandates to provide automatic savings accounts.”
Providing an example at the hearing, Senator Alexander said he recently met with a franchise group that owns nearly 20 fast food restaurants. The company, which has 542 full-time employees, faces 6.2 percent Social Security and Medicare taxes for each employee, a menu labeling mandate that costs $1,000 per restaurant, minimum wage mandates that cost nearly $25,000 a year, and paid sick leave mandates.
The health-care mandates will increase their costs: “They tell me they offer health care to all of their 542 employees but only 34 take it. If nothing changed next year—that is, if the health care law didn’t come into effect—they would still be spending more than $94,000 in health care. Under the health care law, if they opt to pay the penalty, they’ll be spending $1 million, instead of $94,000. That exceeds their entire net profit for the year 2013. If they were to decide to continue to offer health care, their costs would be between $400,000 and $1.4 million. You could apply the same sort of reasoning and statistics to a smaller company and come out with a similar result.”