Even in today’s booming economy, many Arkansans are saving far too little for retirement—in part because their employers don’t offer any retirement plans. And many small businesses would like to offer their employees 401(k)s, but the legal liability, cost, and just plain hassle are too much to handle.
That’s why I’ve introduced legislation to lighten the regulatory burden, so more small businesses—whether they’re dry cleaners, nail salons, or local bars—can offer 401(k)s.
This issue demands our attention now because the number of Americans unprepared for retirement is growing. Three items—housing, transportation, and food—make up 63 percent of the average household budget, and they’re getting more expensive, not less. They’re eating up even more of the family budget than they did 20 years ago. As a result, the typical American ages 55 to 62 has only about $14,500 in savings. And consider: Fidelity estimates an average 65-year-old couple should expect to spend $280,000 on health care alone in retirement.
And if they’re planning to depend on Social Security, that’s not a sure bet. Today, 62 percent of all retired workers get at least half of their monthly income from Social Security, and 34 percent depend on it for between 90 and 100 percent of their income.
But a recent report delivered grim news: Just this year, the program started paying out more money than it takes in. And by 2034, the program’s board of trustees estimates it will have completely exhausted its $3 trillion in asset reserves.
Social Security simply won’t be enough to support a comfortable retirement.
To make things worse, fewer employers are offering retirement plans of any kind. In 1979, at least a third of our private-sector workers had defined-benefit plans; today it’s only 15 percent. In fact, today fewer workers have access to any retirement plans at all. In Arkansas, meanwhile, private-sector workers have less access to retirement plans than the national average. And it’s predominantly lower-wage workers who are missing out on the chance to build real wealth.
But there’s an option out there that could do a lot of good: pooled employer plans. If your local nail salon finds it daunting to offer its employees a retirement plan on its own, it could join forces with the local bar or car dealer and offer a common plan to their employees.
There’s just one hitch: Today, only employers who work in related fields can pool their resources and offer a retirement plan, or what’s called a multiple employer plan. But it’d be even better if employers from unrelated fields could do the same. That’s why Senators Orrin Hatch of Utah and Ron Wyden of Oregon have introduced legislation to help different types of small businesses lower their costs and offer what are known as pooled employer plans.
But even if their bill becomes law, there will still be one last roadblock for some smaller businesses: the legal liability. That’s why I’ve introduced a bill, along with Senators Todd Young, R-Ind., Cory Booker, D-N.J., and Heidi Heitkamp, D-N.D., that would shift most of the fiduciary duty of an open pooled employer plan from the small business to the usually much larger investment firms that run these plans.
This small step will give business owners peace of mind and give more Americans the chance to build real, inheritable retirement assets through tax-preferred payroll deductions.
Our legislation is straightforward and common-sense—and it could make a big difference. Those with access to a workplace plan retire with 79 percent of their pre-retirement income, while for those who don’t, it’s 44 percent. It isn’t fair to let 401(k)s be the exclusive province of big companies and white-collar employees.
Making this simple change would allow more people, whether they’re small-business owners or blue-collar workers, to become investors. And it would go a long way toward strengthening retirement security for Arkansans and Americans alike.
Tom Cotton is the junior U.S. senator for the state of Arkansas.