News From the
Committee on Small Business
Nydia M. Velázquez, Chairwoman

For Immediate Release                                                       CONTACT:  Alex Haurek; Duncan Neasham
February 25, 2009                                                                                                         (202) 226-3636

Small Businesses Struggle with Retirement Plan Obligations  

Stock Markets’ $2 Trillion Loss in Retirement Savings Hits Nation’s Entrepreneurs Hard

WASHINGTON, D.C. —Key lawmakers today examined the effects of the current financial crisis on the ability of small firms to provide and fund retirement plans for their employees. At a hearing before the House Committee on Small Business, witnesses discussed the challenges small businesses face in offering and funding retirement plans, and explored ways to provide relief to entrepreneurs struggling to meet employee retirement program obligations.

“When retirement accounts lose value because of volatility on Wall Street, small firms are hit doubly hard,” said Rep. Nydia Velázquez (D-NY), Chairwoman of the House Small Business Committee. “Many small businesses have been forced to scale back contributions to retirement plans or, even worse, are finding they are unable to meet their legal obligations to pay into their employees’ retirement.”

Analysts estimate that, in the past 18 months, over $2 trillion in retirement savings has been lost through the stock market’s prolonged decline. 401(k) plan balances for workers 35 to 65 have shed over 20 percent of their value in the past year alone.

“Even before the economic downturn there was concern that small employers could not offer retirement plans at the same level as large corporations,” said Chairwoman Velázquez. “With consumer spending at an all-time low, and credit difficult to access, many small firms find it impossible to make up the difference for retirement plans hit hard by the stock market’s losses.”

Witnesses told lawmakers that many small businesses who do offer retirement benefits are struggling to meet their obligations and stay afloat, facing a stark decision between shutting their doors or ending their contributions to employees’ retirement plans. Witnesses also testified that the recent slide in the value of retirement accounts is affecting how workers view their retirement prospects. According to a recent survey by the Transamerica Center for Retirement Studies, 56% of workers are less confident in their ability to achieve a financially secure retirement than twelve months ago and 29% expect to work longer and retire at an older age. Witnesses urged the Committee to consider measures to cap the amount of losses they are responsible for covering so plans remain solvent. Retirement specialists also noted that current minimum distribution requirements can undercut a retirement plan’s value by requiring a beneficiary to withdraw funds when the account is devalued by a market downturn.

“When pension and retirement plans decline, there are real consequences for small businesses and the families that rely on them,” said Chairwoman Velázquez. “If we can make it easier for small firms to offer retirement plans for employees, it will ensure security in the golden years and add to our nation’s long-term economic stability.”

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