By Martha M. Hamilton
Sunday, July 1, 2007
Jeanette Howarth would love to offer better benefits to employees who work for Howarth Excavating and wishes more employees would participate in her company's retirement plan.
She's run the Michigan small business with her husband, Richard, for 28 years. At one point they offered both health-care and retirement coverage to their tiny staff. But as the cost of health care escalated and times got tougher, they dropped health-care coverage. The retirement plan survives, but participation -- even by the owners -- has been minimal.
"The construction industry is fraught with a lot of overhead, especially with Michigan being so depressed right now," said Howarth, whose company is headquartered in Newago, about 45 miles north of Grand Rapids. "So many people are moving out of Michigan and losing jobs that it's quite scary."
Although Howarth is 50 and her husband is 54, their retirement savings "are pretty meager," she said. Any extra money they make goes right back into the business.
The Howarths face the same obstacles as hundreds of thousands of other small-business owners who often work flat out just to keep the business operating. They don't have accountants, lawyers, tax consultants or human resources offices to help sort out complex benefits rules, and their earnings are often unpredictable. That retirement planning takes a back seat is not surprising.
Larger companies with 100 or more workers have 65 percent participation in retirement plans. But for businesses like the Howarths', with fewer than 25 employees, the rate drops to 25 percent. The Howarths employ five people, including themselves.
A recent survey by the National Association for the Self-Employed found that the biggest barrier to a business-based retirement plan was that the business owners couldn't afford to administer or contribute to one. And small businesses are the fastest growing employment sector in the economy.
Okay, so you don't run a small business or work for one. Why should you care?
Well, for one thing, it may have a bearing on the future of someone you love -- say, a brother or a sister or a son or daughter. In my case, it's my stepson, Mark, who pastors a small church and works for a small business, neither of which provides retirement coverage.
Even if you don't have a personal stake, you may end up paying higher taxes to provide services to retirees who don't have enough to live on. A huge number of workers -- nearly half of all private-sector employees -- either don't have or don't participate in retirement plans where they work.
One group that's been thinking about ways to help ensure a financially secure retirement for a larger number of people is the Conversation on Coverage, a Pension Rights Center initiative launched in 2001 by 75 retirement experts and backed by organizations including the Ford Foundation, the Annie E. Casey Foundation, the Atlantic Philanthropies, AARP, insurance and mutual fund companies, several unions and the U.S. Chamber of Commerce.
Among the group's recommendations released earlier this year were strategies to make it easier for small businesses to cover employees. It sounded good, but how would the ideas actually work in the real world?
I got Jeanette Howarth on the phone with Karen Friedman, director of the Conversation on Coverage, and Maria Freese, who headed the working group on small business coverage. Freese is also with the National Committee to Preserve Social Security and Medicare.
Howarth had a lot of questions. She probed for weaknesses or potential unfairness in the group's suggestions. But in the end, she came away liking its ideas.
What the Conversation on Coverage did was to try to improve the plan that many small businesses, including Howarth's, already use.
The plan is the Savings Incentive Match Plan for Employees of Small Employers, or SIMPLE. It allows owners of businesses with fewer than 100 workers to set up an individual retirement account for themselves and eligible employees. Workers can contribute up to $10,500 a year. Employers must offer matching contributions up to 3 percent of employee wages or fixed contributions equal to 2 percent of employee wages.
Howarth offers to match up to 3 percent of contributions dollar for dollar, although few of her workers have taken her up on it.
The law requires companies to put in the matching funds in good times and bad, which discourages many employers from offering the plan.
Conversation on Coverage suggests changing the rules to allow the ceiling on contributions to decline in years when the employer cannot afford matching contributions, and letting employees contribute even in years when the company can't afford to match contributions.
It also calls for financial institutions to assume most of the burden for educating employees about the savings plan. They also would administer the plan, relieving employers of many time-consuming tasks.
The proposal envisions creating pools of small businesses -- perhaps within a city or through an association -- whose plans could be administered together to reduce overhead costs.
The group recommends automatically enrolling workers in the retirement program. Howarth said she had been frustrated by the failure of some of her employees, especially younger ones, to understand why saving for retirement makes sense. Financial institutions could help educate those younger workers about the benefits of early savings, said Friedman and Freese.
The proposed plan would give financial institutions the option of allowing workers to take loans from their accounts -- a no-no with SIMPLE accounts, which are IRAs. That might make it more attractive to younger workers who worry that their savings are forever out of reach.
"I do like the features," said Howarth. "A lot of things have been worked out that have addressed some of the frustrations." Howarth said she thinks most small business owners want to do the right thing for their employees. "They do realize that if you treat people right, they'll be loyal, and they'll treat you right."
The retirement plan envisioned by the Conversation on Coverage isn't yet available -- it would require changes in the law. But if Howarth's reaction is any guide, it could help ensure that more workers go into retirement with something besides Social Security.
If you have subjects you would like to see addressed in future columns, please e-mailhamiltonm@washpost.com.
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