STATEMENT
of the
Honorable Nydia M. Velázquez, Chair
House Committee on Small Business
Hearing on "Drop in Retirement Savings: The Challenges Small Business Face
Funding and Maintaining Retirement Plans in a Struggling Economy"
Wednesday, February 25, 2009, 1 p.m.

If we have learned anything from the current financial crisis it is that -- for better or worse -- Main Street’s economy is tied to the markets on Wall Street.  As a result, the recent decline in the stock market has touched every corner of our lives, and the fallout is everywhere.  But, while much has been made over indicators like tightening credit and reduced consumer spending, there are other troubling consequences.  One of the most overlooked effects of the stock market slide has been the impact on small business retirement plans. 

It has been estimated that, in the last 18 months, over $2 trillion in retirement savings has been lost from retirement plans, primarily due to the stock market’s decline.   Just in the last year, 401(k) account balances for workers between 35 and 65 have shed over 20 percent of their value.  

For small businesses and their employees, these problems are compounded.  Unlike Wall Street executives, small firms do not have golden parachutes to fall back on.  For many of these men and women, pensions and 401(k) plans are their only form of savings.   So, when volatility in the stock market impacts their accounts, entrepreneurs are hit particularly hard.  

As the economic downturn hits retirement funds, small businesses that provide these benefits are finding it even harder to stay afloat.  Employers that tried to do the right thing and offer a secure retirement to their workers are being hit the hardest.

For example, when the value of pensions drop, many small business owners still find themselves on the hook for paying out benefits.   With credit almost impossible to access, consumer spending near an all time low, and sales devastated, small firms simply lack the revenue to fund retirement plans.  In some cases, this means entrepreneurs do not have the ability to meet their legal obligations.  In other instances, small businesses are scaling back or ending their contributions.  Overall, too many small businesses are finding that continuing to fund their retirement plans would put their entire business in jeopardy. 

In today’s hearing, we will explore ways to help small businesses that have offered retirement plans, but are now in a difficult position because of poor decisions made on Wall Street.

One way to assist small business owners might be to cap the amount of losses that they are responsible for paying during market downturns.   This could help keep solvent many firms with defined benefit plans.  Another approach would allow small firms to look further ahead for pension values when calculating how much they must pay into employee’s retirements.  Other proposals would encourage small employers to offer retirement plans by making it easier to borrow against them during difficult economic periods.

These and other ideas merit further discussion.  But, while a number of approaches can be taken, one thing is clear: we must act soon to help small businesses struggling with retirement fund obligations. 

A secure retirement has long been part of the American social contract.  Now, too many small employers are suffering for simply trying to live up to their side of the bargain.