Transamerica Retirement Services, a Los Angeles-based retirement services provider that specializes in small to mid-sized companies, has found that smaller companies are moving faster than anticipated to help their employees take advantage of increased retirement plan contribution limits set forth in the Economic Growth and Tax Relief Reconciliation Act of 2001.
Catherine Collinson, a senior vice president with Transamerica, recently spoke with Mutual Fund Market News' Nancy Opiela about why the new tax law is so important to smaller businesses. An edited account of the conversation follows.
MFMN: Why are smaller businesses so anxious to take advantage of the new retirement plan saving opportunities?
Collinson: Some studies predicted that implementation of new tax law provisions would be delayed and that employers would not grasp all of its options, but we have not found that to be the case.
Among 1,200 of our clients who have made changes to their retirement plans because of the new tax law, many are responding to several of its provisions. Ninety-five percent have signed up for rollovers, 91% have elected to add the catch-up provision for employees over age 50, and 71% have increased their deferral limits.
With all that's going on in the world today, we are extremely pleased that we could get the message across in a strong enough way that people acted on the information right away.
When we published our annual Transamerica Retirement Survey in the fall of 2001, we found that the vast majority of employers and employees were totally unfamiliar with the changes in the tax law. As a 401(k) provider, we worked to get the word out to our client companies and their employees that they should take advantage of these opportunities as soon as possible.
MFMN: How did you reach clients and their employees?
Collinson: In the small business retirement market, we typically reached them through a financial advisor or stockbroker. For the larger companies, we sent special newsletters and statement stuffers to both employers and employees and posted information on our Web site.
MFMN: Do you think the new tax law will have any impact on business owners' classic objection to offering a retirement plan, that employees care more about salary than retirement benefits?
Collinson: It's true that many small business owners who don't offer a plan tell us their employees would prefer a higher salary. However, that contradicts what we hear from the employees.
In fact, for three years in a row, employees surveyed for our retirement study have indicated that they prefer a job that meets their salary requirements and offers excellent benefits over a job that meets their salary requirements but offers poor benefits,
We predict that 2002 will be the year that the retirement gap at small businesses will start to close, in part because of new tax credits specifically designed to prompt small businesses to start a retirement plan. It's never been more affordable to offer a plan.
MFMN: Are you seeing increased interest among small businesses that currently don't have a plan to now offer one?
Collinson: I think we hear the engine revving up. We expect to see increasing activity throughout the year and then a big increase in activity in the fourth quarter. We find that many employers decide to add a plan in the fourth quarter because they can still get the benefit for the whole year.
MFMN: Are there other trends you're seeing today in the retirement plan arena?
Collinson: What is disconcerting, from a retirement plan provider's perspective, is that Americans are working harder than ever to support their families and set aside something for retirement. Yet each quarter, Americans spend little time reviewing their retirement plan. They are overlooking a critical task, since this is the money most are going to have to live off of in their retirement years.
Although as an industry we have accomplished a lot by encouraging Americans to save, we have a lot more work to do in terms of helping them to set goals and manage their investments.
Our retirement survey showed that although the overwhelming majority of Americans, 86%, are saving for retirement and a majority indicated they would curtail their current lifestyle to save more for retirement, many people need help setting their goals and managing their investments.
A startling 40% admitted they don't know how much they'll need for retirement. Only 10% have used an adviser or online tool to calculate what they will need for retirement. I think we all have to work to remove the intimidation factor and give people a push so they can take advantage of these new savings opportunities.