According to Grassley, a newly established SIMPLE IRA allows businesses with fewer than 100 employees to offer a pension plan in the form of an Individual Retirement Account (IRA). This SIMPLE IRA -- or Savings Incentive Match Plans for Employees -- was created by the Small Business Job Protection Act of 1996.
"Small businesses are a job-creating engine of our economy and employ nearly 40 percent of the private-sector workforce in the United States. I want to help make sure that small businesses in Iowa are aware of this new opportunity to enhance retirement security for workers," Grassley said. "Private pensions will continue to become more and more important for retirement income security, especially with retirement of the baby boomer generation when additional demands will be put on the Medicare and Social Security programs."
Specifically, the SIMPLE plan allows employees to contribute a percentage of their salary each paycheck and to have their employer match their contribution. Under SIMPLE plans, employees can set aside up to $6,000 each year by payroll deduction. Employers can either match employee contributions dollar for dollar, up to three percent of an employee's wage, or make a fixed contribution of two percent of pay for all eligible employees instead of a matching contribution.
According to the Department of Labor (DoL), SIMPLE plans are relatively easy to set up for employers. Application is simple, administrative costs are low and much of the paperwork is handled by the financial institution that handles the SIMPLE plan accounts. Employers may choose either to permit employees to select the IRA to which their contributions will be sent, or to send contributions for all employees to one financial institution.
Since January, Grassley has served as Chairman of the Senate Special Committee on Aging. In June, he conducted a hearing which highlighted a dramatic rise in pension miscalculations. Following the hearing, Grassley introduced a bill to reestablish funding for pension counseling projects which serve as resources for workers experiencing problems with their pensions. Approval for such expanded funding has been included at Grassley's request in a committee-passed appropriations measure to be considered later this year by the full Senate. The Grassley legislation also would modify the Older Americans Act to establish an 800 number to serve as a single source of entry for individuals seeking assistance with pension plans.
Experts estimate that Americans will need 60 to 80 percent of their pre-retirement income to maintain their current standard of living when they stop working. Lower-income workers may need up to 90 percent to do so. A majority of employees who work for small businesses do not have pension coverage. Only 24 percent full-time workers in small business are covered by pensions. In contrast, 68 percent of employees of larger businesses are covered by pensions.
Grassley said publications describing SIMPLE retirement plans and other options for small businesses are available through the Pension and Welfare Benefits Administration (PWBA). To obtain a copy, employees or small business owners should call toll-free, 1-800-998-7542. Such information also is accessible through the Internet. The address is http:www.dol.gov./dol/pwba.