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November 30, 2009 |
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New Pension Option For Small Biz |
(Dow Jones) Small businesses will get a new retirement savings option in 2010—the
DB(k). Adoption is expected to be slowed, however, by the sluggish
economy and missing regulatory details.
The DB(k) enables businesses with fewer than 500 employees
to sponsor pension and 401(k) plans with less paperwork, more
predictable costs and lower premiums, says Judy Miller, chief of
actuarial issues and director of retirement policy for the American
Society of Pension Professionals and Actuaries, or ASPPAJ.
The DB(k) plan was authorized in the Pension Protection Act
of 2006, to begin in 2010, but the plan has waited since then for final
Internal Revenue Service and U.S. Treasury rules, which have yet to be
issued or scheduled.
DB(k)s are considered good for small businesses because they
enable them to offer the guaranteed income of a pension and the
opportunity for workers to save in a 401(k), benefits typically
available only at larger firms.
"We really see this as a more innovative approach," says
Chris Mayer, vice president of retirement and investor services at
Principal Financial Group Inc. (PCPG), which helped to develop the
product with the ASPPAJ. The product is primarily for companies that
"are looking to attract professionals and long-term staff in a
competitive field, such as engineering."
Among other things, companies would be required to establish
a pension fund sufficient to pay a worker at retirement up to 20% of
that individual's average annual salary received during the last few
years of work. The company also would automatically put 4% of the
employee's salary into a 401(k) plan. The business must then match at
least 50% of that amount. Employers hope that workers, by being
enrolled automatically into the plans, would save more for retirement.
The plans would be exempt from "top-heavy" rules, which
traditional retirement plans must meet and which are designed to ensure
that plans don't favor highly paid workers. Another attraction is much
less paperwork than would be required by operating a pension and a
401(k) plan separately. Employers with a DB(k) would file only one plan
document and one Form 5500—the annual information return—for the two
plans, says Miller.
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