SPARK Pushes Universal Small-Business 401(k)

A trade group representing retirement services industry providers has recommended the creation of a mandatory standardized 401(k) plan.

In remarks delivered this week to the Department of Labor’s ERISA Advisory Council meeting in Washington, D.C., Spark Institute General Counsel Larry H. Goldbrum said the proposed plan would have to be offered by any small employer (i.e., less than 100 employees) in business for at least a year, with at least one non-owner employee.

The plans would have to include mandatory enrollment and contribution escalation features with participant opt-out provisions.

Goldbrum said the group supports the move because of the system efficiencies it could produce.

“The SPARK Institute believes that this type of arrangement can provide a cost-effective way for more employees to be able to save through workplace savings plans and to leverage the current 401(k) system infrastructure and experience,” Goldbrum said in the prepared remarks. “We urge legislators and regulators to consider and support the development of the universal standardized 401(k) plan concept outlined herein in order to help more workers employed by small employers to gain access to 401(k) plans.”

No Discrimination Testing

According to Goldbrum, the proposed plans would have to include the following features and requirements:

  • impose the same contribution limits as for regular 401(k) plans;
  • be governed by a single government approved prototype plan document, which would substantially reduce administrative costs and relieve employers of the burden of ensuring that their plan documents comply with applicable legal requirement;
  • have limited plan features to prevent pre-retirement leakage (i.e., no loans or hardship withdrawals);
  • eliminate discrimination testing to substantially reduce the compliance administrative burdens— SPARK contended the requirements that all employers offer a plan and that such plans include mandatory enrollment offset the need for such testing by providing access to a plan for all employees and requiring employees to affirmatively opt out if they choose not to save;
  • drop employer contribution requirements;
  • feature investment options that meet specified minimum requirements for broad-based investment choices—investment options can be chosen by either the employer, if it prefers to do so and the service provider's arrangement allows, or determined by the service provider as part of its product package; employers and service providers would be protected from potential liability for investment losses for investments that satisfy safe-harbor criteria;
  • let employers choose the vendor and program to offer; and
  • permit vendors to aggregate assets across plans and employers, provided that individual plan and participant assets can be separately identified and accounted for.

More information about the SPARK proposal is available here.