ASPPA SURVEY CONFIRMS "NEW COMPARABILITY" EXPANDS
SMALL BUSINESS RETIREMENT PLAN COVERAGE

Press Release


For Immediate Release: Contact: Brian H.Graff
May 17, 2000 703.516.9300


ASPPA SURVEY CONFIRMS "NEW COMPARABILITY" EXPANDS
SMALL BUSINESS RETIREMENT PLAN COVERAGE


A recent survey of over 10,000 "new comparability" plans, conducted by the American Society of Pension Actuaries, reveals that these plans not only provide valuable retirement coverage for small businesses employees but also expand access to those who previously had no coverage.

Since 1981, the Internal Revenue Service (IRS) has allowed small businesses to adopt "new comparability" plans to provide retirement benefits for their employees. The ability of small businesses to adopt new comparability plans was confirmed in Treasury regulations finalized in 1993. Thousands of small businesses across the country have adopted new comparability plans because they take into account the relative older age at which small business owners start retirement plans, while allowing small businesses to provide their employees with equivalent levels of contributions. With new comparability plans, small businesses make contributions on behalf of employees regardless of whether or not the employees save on their own.

Some key findings of the study include:

• New Comparability Plans Expand Small Business Retirement Plan Coverage. 58% of the plans surveyed were adopted by small businesses with no previous retirement plan coverage. An additional 20% of the new comparability plans were adopted where the only previous plan was a 401(k) plan funded only by employee and matching contributions. Consequently, new comparability has produced significant new retirement benefits for small business employees where, in many cases, they were receiving no retirement benefits at all.
  
  
• Small Business Plans Would Terminate Without New Comparability. Half (50%) of the surveyed small businesses with a new comparability plan would not adopt another qualified plan for their employees if new comparability plans were no longer permitted.
  
  
• New Comparability Provides Substantial Benefits to Small Business Employees. 21% of the plans surveyed provide at least a 7% of pay contribution to small business employees, regardless of any employee savings to the plan, while 49% provide at least a 5% of pay contribution. Virtually all (96%) provide at least 3% of pay contribution even though only 75% of these small business plans are "top-heavy" under qualified retirement plan rules, and thus are required to contribute 3% of compensation on behalf of non-highly compensated employees.
  
  
• New Comparability Plans are Small Business Retirement Plans. Of the more than 10,000 plans surveyed, 36% were maintained by small businesses with less than 10 employees. 35% were maintained by those employing between 10 and 25 employees, while 19% were maintained by those employing 26 to 50 employees. A mere 10% were maintained by businesses of more than 50 employees.
  

The Department of the Treasury and the IRS have announced a review of non-discrimination regulations, and particularly "new comparability" plans. The agencies appear to be concerned with the disparities in contribution rates between highly and non-highly compensated employees. One alternative approach suggested by Treasury would discriminate against small businesses merely for having a small number of employees, leading to the termination of many of these small business retirement plans.

ASPPA and other organizations representing the small business community are opposed to the elimination or substantial revision of new comparability plans due to the devastating effect that these changes could have on small business retirement plan coverage. ASPPA's survey clearly demonstrates the beneficial aspects of new comparability plans and their importance to small businesses and their employees.

ASPPA is a national organization of approximately 4,000 members who provide actuarial, consulting, administrative, legal and other professional services for about one-third of the qualified retirement plans in the United States, the majority of which are maintained by small businesses. ASPPA's mission is to educate pension actuaries, consultants, administrators, and other benefits professionals and to preserve and enhance the private retirement system as part of the development of a cohesive and coherent national retirement income policy.