A bill was presented to the Connecticut Commerce Committee on Tuesday, March 11, 2008. SB No. 652 'AN ACT CONCERNING SMALL BUSINESS RETIREMENT PLANS', would allow the Comptroller to establish and administer a retirement plan that will be available to small employers and individuals. Because of the complex nature of 401(k) plans, along with the potential liability the State could incur by becoming a Fiduciary of these retirement plans, Sean Thomas of Wells Thomas, LLC testified before the committee in opposition of this proposed bill. Sean, along with other TPA firms in Connecticut, and representatives of ASPPA, attended the hearing and presented numerous reasons for their opposition to this bill.

Though we applaud the state for recognizing the need to make small companies in Connecticut aware of the need to plan for retirement on behalf of all employees, we feel the proposed measure was not a viable solution.

Here is copy of the testimony Sean presented to the Commerce Committee (below the testimony please find a copy of the bill as proposed):

March 11, 2008


Commerce Committee
Room 110, Capitol Building
Hartford, CT 06106

Re: SB No. 652 (Raised) An Act Concerning Small Business Retirement Plans

Dear Members of the Connecticut Commerce Committee:

My name is Sean Thomas and I am the president of Wells Thomas, LLC, a Third Party Administrative company in Branford, Connecticut. My company, with a staff of ten retirement plan administrators and support personnel, provides retirement plan design and administrative services to approximately 370 small companies. We strongly oppose SB Number 652 – An Act Concerning Small Business Retirement Plans.

This Act would permit the State Comptroller to “establish a tax-qualified defined contribution retirement program to provide retirement investment plans, including, but not limited to, those created under Sections 401 of the Internal Revenue Code, of 1986…”

While we agree that efforts should be made to entice small companies to establish qualified retirement plans for their employees, we do not agree with the method proposed in this bill. It has been our experience that low cost generally equates to low service to the plan sponsor, which in turn results in little participation by the eligible participants. Our industry is one predicated on service to our clients, with the goal of increasing participation and retirement savings for all employees.

The key stumbling block we see in designing retirement plans for potential clients is not the administrative costs, nor the investment fees, but the restrictions in plan contributions. In short, most small company owners opt to implement a plan and make ongoing contributions to the plan if, and only if, the owners are able to see a tax advantage in doing so. Often this can only be achieved through more complicated plan designs.

In our complex profession, we strive to provide each client with an individually designed retirement plan that suits the need of that particular company. In an effort to accumulate sufficient retirement benefits for all level of employees, we recognize the need for ongoing monitoring of the plan design as well as education and service to both the employer and employees.

There are already a number of low- or no-cost plan design alternatives available to small companies, such as SIMPLE 401(k) Plans (which have very little administrative costs) and SIMPLE IRAs (which have no administrative costs). In addition, Safe Harbor Plans have been available for a number of years, which reduce administrative costs by eliminating certain plan testing requirements. These plans generally require the employer to make only a 3% of pay contribution to the employees and allow all employees to contribute higher amounts to the plan.

The current marketplace has continuously reduced the fund and asset management expenses under retirement plans. Several providers have released new products with lower expense ratios in order to compete in the qualified plan market. Many funds offered are Institutional or Retirement Class shares, with front and back end loads waived. Recent focus on fee disclosure has helped drive down Investment Advisor Fees.

In operation, if SB No 652 were to pass, an RFP for the state sponsored plans would be issued each time the current contract expires. If a change in the provider occurs, this would result in forced changes in investments by plan participants, mandating notices and education to all those affected in order to meet Fiduciary Requirements. This would create an extremely large administrative burden, with associated costs going to plan participants or Connecticut taxpayers.

These are just a few of the many reasons why we feel SB No. 652 is not a viable mean to increase the number of small companies sponsoring retirement plans. The administrative costs for the services provided by our industry result in each employer’s qualified plan being treated individually, as required by the Employee Retirement Income Security Act of 1974. We feel that having a so-called “streamlined” state-sponsored plan would likely side-step this important tenet in retirement plan administration.

Again, I ask that you oppose SB No 652 as, not only would it potentially take away the majority of our client base (as well as tax revenue to the state from our profession), but in doing so it would likely lessen the services these clients receive.

In addition, a Committee member asked of someone who testified earlier today: 'What additional questions should the Committee ask in seeking out all of the necessary information on the State taking this step.' I believe one of the more immediate concerns is that of Fiduciary Liability. The fact that the State Comptroller will put out RFPs and make the decision on which investment provider will be offered, would, under the terms of ERISA, make the State Comptroller a Fiduciary to EACH of the individual small company plans that elect to take part in this. This matter should be looked into very carefully as it brings with it great liability.

I thank the Committee for its time today.


Sincerely,


Sean W. Thomas, QKA
President


Here is a copy of the act as presented to the Commerce Committee:
AN ACT CONCERNING SMALL BUSINESS RETIREMENT PLANS.
Be it enacted by the Senate and House of Representatives in General Assembly convened:
Section 1. (NEW) (Effective from passage) (a) As used in this section, "small employer" shall have the same meaning as in the Employee Retirement Income Security Act of 1974 (ERISA), as amended.
(b) The Comptroller shall establish a tax-qualified defined contribution retirement program to provide retirement investment plans, including, but not limited to, those created under Section 401 of the Internal Revenue Code, of 1986, or any subsequent corresponding internal revenue code of the United States, as from time to time amended to self-employed individuals, small employers and organizations qualifying as tax-exempt pursuant to Section 501(c)(3) of said Internal Revenue Code. In administering such plan, the Comptroller shall seek to minimize costs by helping small employers and individuals purchase retirement savings plans, arrangements and investments through economies of scale, standardization and other measures.
(c) In carrying out the provisions of this section, the Comptroller may contract with a third-party administrator for the management of such plan or plans and may recover from program assets expenses incurred to initiate, operate and administer the program established pursuant to subsection (a) of this section.

We wish to thank all of the members of the Commerce Committee for their time in listening to both sides of this important issue. The members of the Committee asked some very thought-provoking questions, and were genuinely interested in looking at the problem from all angles.

DOL PROPOSES DEPOSIT TIMING REGULATIONS

The proposed regulations are intended to provide small plan sponsors with a clear safe harbor to ensure compliance with the deposit standards. Under the proposed safe harbor, participant contributions to a pension or welfare benefit plan with fewer than 100 participants at the beginning of the plan year will be treated as complying with the regulations if the contributions are deposited no later than the 7th business day following the day on which the amounts would have been payable to the participant in cash or following the day on which such amount is received by the employer (in the case of a participant loan payment given to the employer). As a safe harbor, contribution deposits satisfying the requirements of the proposed regulation will be treated as having been made timely even if such contributions could clearly have been segregated from employer assets more rapidly.