News from U.S. Senator Olympia J. Snowe
Chair, Senate Committee on Small Business and Entrepreneurship
For Immediate Release: July 25, 2006
Contact:  Chris Chichester, 202-228-5843  

SNOWE INTRODUCES BILL TO HELP SMALL BUSINESSES CREATE PENSION PLANS

Measure Targets Employees With Lower Retirement Savings

Washington, D.C. – U.S. Senator Olympia J. Snowe (R-Maine), Chair of the Senate Committee on Small Business and Entrepreneurship, introduced a bill (S. 3715) last night that will make it easier for small employers to offer pensions to their employees with lower retirement savings through “Defined Benefit 401 (k) Plans” or  "DB/K plans."

“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,” said Senator Snowe.   “Instead, many small businesses choose to create 401(k) plans that do not require employer contributions and offer their employees no guaranteed retirement benefits.  My legislation creates a “Defined Benefit 401(k),” which is a combination of a defined benefit plan and a section 401(k) plan.”    

Senator Snowe’s leadership ensured DB/K provisions were included in the Senate pension reform bill (S. 1783) that passed on November 16, 2005.   She has worked aggressively to include these provisions in the final pension conference report with the House, which is still pending.     

Senator Snowe noted that research finds employees of small firms are significantly less likely to participate in company sponsored retirement savings plans.  According to the Employee Benefit Research Institute only 16 percent of employees at companies with 10 workers or less, and 32 percent of employees at companies with 100 employees or less participate in their company sponsored retirement savings plans.  Comparatively, almost 60 percent of employees at companies with more than 1,000 workers save for retirement through a company sponsored plan.   

Senator Snowe’s bill would be subject to the present-law rules for defined benefit plans or 401(k) plans, but the rules would be greatly simplified.  Like 401(k) plans, the proposed DB/Ks would allow employees to make pretax contributions to their accounts, include employer matching funds and permit employees to invest their 401(k) portion in mutual funds.   The assets of both components of the DB/K plan could be held in a trust covered by a single trust instrument. However, the assets of the defined benefit component of the plan and the assets of the 401(k) component of the plan must be clearly identified and allocated to the appropriate part of the trust.   

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