Maine Senator Pushes DB(k) Plan to Aid Small Business Owners

July 26, 2006 ( - Maine Senator Olympia Snowe proposed a bill Tuesday night that could help ease the costs for small businesses to offer retirement plans.

Senate Bill 3715 would create a hybrid defined benefit and 401(k) plan that Snowe, a Republican, claims would make it easier for small employers to offer pensions to their employees with lower retirement savings.

“Currently, due to complex tax rules and high establishment costs, many small businesses are unable to create pension plans for employees with lower savings rates,” Snowe said in a press release. “Instead, many small businesses choose to create 401(k) plans that do not require employer contributions and offer their employees no guaranteed retirement benefits.”

In the release, the Senate Committee on Small Business and Entrepreneurship chairwoman cited research from the Employee Benefit Research Institute, which found that 16% of employees at companies with 10 workers or less and 32% of employees at companies with 100 employees or less participate in their company-sponsored retirement savings plans.

Like 401(k) plans, the proposed DB(k) plans would allow employees to make pretax contributions to their accounts, include employer matching funds and allow employees to invest 401(k) money in mutual funds.

This is not the first time the hybrid plan has been brought to Congress. The Principal Financial Group and the American Society of Pension Professionals and Actuaries have already suggested the DB(k) plan as a way to help small- to mid-sized employers offer retirement plans.

According to Principal, contributions into the plan by employers would be tax deductible and would cut down on the administrative burden of offering both defined benefit plans and 401(k) plans. The group also claims the DB(k) plan would especially help smaller employers, shaving down company administrative duties by requiring an  IRS  fee, one ERISA audit and Form 5500 Annual Report and  only one plan document.   The DB(k) plan would give employees a fixed source of income at retirement as well as an opportunity to add their own tax-deferred contributions.

Snowe’s DB(k) provisions were included in the Senate pension reform bill, passed in November 2005, but whether they will be included in the final pension conference report is uncertain.