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Retirement for the little guy

By Jennie L. Phipps ·
Sunday, May 19, 2013
Posted: 7 am ET

If you are self-employed or work for an employer with fewer than 100 employees, chances are you aren't saving in an employer-provided retirement plan.

That puts you behind the retirement planning eight ball because it increases the difficulty of saving regularly.

Last Thursday, U.S. Sen. Tom Harkin, D-Iowa, and Rep. Richard Neal, D-Mass., held a Congressional briefing on a bill they've introduced that would create automatic payroll deposit individual retirement accounts, or auto IRAs, for workers who do not have access to employer-provided retirement plans. Employers would be required to automatically enroll employees in an auto IRA unless the employee decides to opt out.

One of those who spoke at the briefing was Jamie Kalamarides, a senior vice president at Prudential Retirement. Kalamarides says this bill also will allow small-business people to join an affinity group plan. For instance, if a small-business person belongs to his local Chamber of Commerce, he and other members could organize a chamber retirement plan. This would be a boon to entrepreneurs and the self-employed.

One big advantage is cost. Kalamarides says the average cost for single or small employee group retirement plans is 1.3 percent, while large group plans can expect costs that are no more than 0.5 percent.

The law would allow small employers and affinity groups to transfer their fiduciary responsibilities to a professional retirement plan manager. That eliminates another concern that currently keeps some small employers from offering plans.

The bill also would get around the biggest problem that plagues current multiemployer plans. Instead of making all the employers involved in a plan jointly liable when one member company fails, this proposal would limit liability for the failure to the single entity that went belly up.

Other notable aspects include:

  • Portable benefits.
  • Benefits paid as annuities, based on the investment returns of the funds at the time of retirement.

Does this law have a chance of passage? Harkins has been a staunch protector of Social Security and a supporter of other efforts to increase retirement security. This particular proposal doesn't have significant costs attached for either taxpayers or small employers, so maybe it will prove to be a winner. We can only hope.


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1 Comment
David C.
May 22, 2013 at 7:58 am

If you are a 'small guy' and do choose to save in a plan designed for you, make sure you learn all the filing requirements. I recently discovered that my mutual fund company was not filing the form 5500-EZ for my solo-401k. This informational return never has any taxes due, but each year it must be sent into the IRS reporting your contributions and balances. If its late, the fee is $25/day with a maximum of $15,000 per late form. I'm facing over $30,000 in fees due to my missing forms. I'm a little guy, trying to use the plans set up by my government to protect my family in retirement, this shocking penalty for an informational filing non-tax form really has me gut punched. Make sure you aren't too smart for your own good. I'm afraid my attempt to save fees by doing it DIY is now going to cost me dearly.