Mr. Chairman and members of the Committee, thank you for inviting me to speak with you today on the important subject of small business retirement plans. I am John W. Bachmann, Managing Partner of Edward Jones Investments, a full-service investment firm with more than 6,600 branch offices in the United States, Canada, and the United Kingdom. I am very pleased to come before this Committee today to express our enthusiastic support for the Portman/Cardin bill, H.R. 10. Edward Jones believes that the Portman/Cardin bill would provide much-needed incentives to small businesses to establish new retirement plans for their workers and to enhance existing plans. We applaud Congressman Rob Portman and Congressman Ben Cardin for their excellent work in proposing this important legislation and for their years of leadership in encouraging retirement savings. We also applaud Congressman Roy Blunt and Congressman Ken Bentsen for their leadership in introducing H.R. 738, which contains critical reforms for small business retirement plans. These reforms have been incorporated into the Portman-Cardin bill.

Edward Jones serves more than 4.6 million investors, of whom approximately 650,000 are small business owners. Our small business owners are, in many cases the smallest of the small - those with 10 or fewer employees and $1 million to $2 million in annual sales revenue. While these small business owners are often overlooked by the financial services industry, our experience is that this group of companies is the fastest growing among the general universe of businesses with 100 or fewer employees.

Planning for retirement income is a growing concern across America. Demographics show us that our nation is growing older and living longer. As American workers retire, their income sources are primarily personal savings (including IRAs), Social Security, and employer-provided retirement plans. Much recent discussion has focused on encouraging Americans to increase their personal savings, and on reforming Social Security. I am here today to discuss ways to encourage small business owners to establish and maintain retirement plans for their employees.

We at Edward Jones are concerned about the low number of small businesses that provide a retirement plan for their employees. Today, approximately 22% of the American workforce is employed at a business with 25 or fewer employees. However, only 18% of these workers are covered by a retirement plan, leaving over 23 million employees of small businesses uncovered. This clearly jeopardizes the retirement security of a very large portion of the workforce.

In June of 1998, I served as a delegate to the National Summit on Retirement Savings, held here in Washington. One of the objectives of the summit was to identify barriers to retirement savings. In looking at employer-provided retirement plans, we discussed two key factors that prevent small businesses from establishing employee retirement plans: the high cost involved in setting up and maintaining tax-qualified retirement plans, and the complexity involved in administering these plans.

The Portman/Cardin bill would very effectively address these obstacles to small business retirement plan coverage. In particular, the bill would:

· Dramatically simplify the annual filing requirements for small business retirement plans. By reducing this administrative burden, the cost of maintaining a qualified plan would be reduced for small businesses.

· Simplify the rules for small business owners who want to provide their employees with enhanced retirement benefits to catch up for the years when the owner could not afford to maintain a plan.

· Increase the contribution limits for plans so as to provide greater incentives for savings and plan establishment. These increases would reverse years of revenue-driven decreases and frozen contribution limits that have severely hindered retirement plan growth.

· Eliminate or simplify burdensome restrictions applicable to small business retirement plans.

The Portman/Cardin bill would also provide a needed boost to our economy by stimulating retirement savings and thus providing a critical source of capital for businesses. In short, this is a bill for both individuals and for businesses. It benefits individuals who need a secure retirement; at the same time, it benefits businesses by making needed capital available. It is truly win-win legislation that should be enacted this year.

Reducing reporting burdens. Retirement plans are generally required to file a Form 5500 with the government each year. This multi-page reporting obligation can be quite burdensome for a small business. The Portman-Cardin bill would simplify this burdensome requirement in two very significant respects.

First, where a small business does not have any employees other than the owners, the Portman/Cardin bill would generally exempt a retirement plan maintained by that business from the Form 5500 requirement if the plan has less than $250,000 in assets (increased from $100,000 under current law). This proposal would dramatically expand the group of small businesses that can focus their resources on retirement savings, rather than on reporting, thus encouraging the adoption of new plans.

Second, the Portman/Cardin bill would make the Form 5500-EZ -- a vastly simpler form available under current law only to owner-only plans with more than $100,000 in assets -- applicable to all plans that cover fewer than 25 employees, as long as they satisfy certain requirements (such as coverage of a nondiscriminatory group of employees). This proposal would simplify the reporting obligation for a tremendous number of small businesses and would do so in a way that has already been recognized as providing sufficient information.

Eliminating obstacles to plan formation. Many small businesses cannot afford to establish a plan during the business' early years. When the business starts becoming profitable in later years, the owner realizes that none of the business' employees has any material retirement savings. Often, the owner wants to remedy this problem not only for himself or herself, but also for the business' loyal employees, some of who may be nearing retirement. This type of business owner should be encouraged to provide generous catch-up contributions for the business' workforce but instead the law contains significant obstacles.

Small businesses that wish to provide a 401(k) arrangement and provide total retirement benefits in excess of 15% of participants' compensation must generally establish two plans: a profit-sharing plan and a money purchase pension plan. Under current law, this type of two-plan arrangement enables many small employers to make total deductible contributions for a participant up to 25% of that participant's compensation. Having two plans, however, adds significant burdens that would not apply in the case of a single plan, such as two determination letter requests to the IRS, two Forms 5500, separate recordkeeping, and separate application of numerous rules (including certain rules that apply differently to the two types of plans).

These burdens are unnecessary; there is no policy reason to require small businesses to have a complicated two-plan arrangement in order to provide enhanced contributions for their employees. The Portman/Cardin bill would solve this problem, and thus encourage small business plan formation, by establishing a simple rule -- a 20%-of-compensation deduction limit with respect to profit-sharing plans -- that minimizes the need for two plans.

Increased limits. The Portman/Cardin bill would increase many of the limits applicable to retirement plans. For example, the limit on 401(k) contributions would be increased from $10,500 to $15,000. The similar limit applicable to SIMPLE plans would be increased from $6,500 to $10,000. In addition, employees who have attained age 50 would be entitled to make additional catch-up contributions of up to $5,000. These increases are sorely needed as an incentive for increased savings and for the adoption of retirement plans by small businesses.

Similarly, the overall limit on employer and employee contributions to a defined contribution plan would be increased by the bill from $35,000 to $40,000. This is clearly appropriate in historical context; the same limit was $45,475 in 1982.

The Portman/Cardin bill also increases a limit that under current law applies most harshly to low and middle-income employees. Under current law, the total of employer and employee contributions to a defined contribution plan cannot exceed 25% of compensation. The Portman/Cardin bill would raise that limit to 100%, so that, for example, the older employee who earns $50,000 and wants to contribute a full $15,000 to his or her 401(k) plan would not be precluded from doing so.

These limit increases will clearly encourage greater savings and the adoption of more small business plans. Moreover, they send a clear message that the government values retirement savings and will strive to increase such savings. Small business owners who have witnessed years of complexity and revenue-driven limit cutbacks will hear this new message and respond to it.

Eliminating or simplifying burdensome restrictions. The Portman/Cardin bill eliminates or simplifies many burdensome restrictions that inhibit the adoption and growth of small business retirement plans. I will provide two examples here.

First, small businesses that adopt or amend a retirement plan must pay a user fee to the IRS in order to request the IRS to approve the plan. This fee, which generally ranges from $125 to $1,250, is an additional cost that is clearly inappropriate in light of the severe need to encourage small businesses to have plans. Accordingly, the Portman/Cardin bill generally provides that a small business retirement plan is not to be charged a user fee with respect to the first five years of its existence.

Second, under current law, businesses cannot deduct contributions to a profit-sharing plan in excess of $15% of participants' compensation. (As noted above, the bill would increase that limit to 20%.) However, this limit has a very odd and harsh aspect that has a disproportionate effect on small businesses. Under present law, employees' 401(k) contributions are counted against the employer's 15% deduction limit. This has forced many small employers to limit their own contributions and/or their employees' 401(k) contributions. The Portman/Cardin bill would eliminate this anomaly by providing that employees' 401(k) contributions do not count against the employer's 20% deduction limit.

We at Edward Jones are confident that the reforms contained in the Portman/Cardin bill will be embraced by our small business owner clients. We believe these reforms will encourage more small business owners to establish and fund retirement plans for their employees. As a matter of fact, during the 1997-1998 winter, more than 10,000 of our small business owner clients signed petitions in support of these types of changes.

Mr. Chairman, changes are needed as soon as possible. The retirement income crisis facing America is real. Americans need to save more for their retirement. However, the generations of Americans working for small businesses today clearly will have a more secure retirement if they participate in an employer-provided retirement plan. We believe the Portman/Cardin bill meets the needs of small business and will provide retirement security for their employees. Mr. Chairman, we urge you and your colleagues to enact the Portman/Cardin bill.

Thank you, Mr. Chairman. I would be pleased to answer any questions you or other members of the Committee may have.