GENDER PAY GAP ISSUE COMPOUNDED BY IRS REGULATIONS

 In Retirement Plan Sponsor

This month, the authors of our Monthly Newsletter shed additional light on the gender pay gap issue and the impact it has on women saving for retirement. Citing statistics from the US Department of Labor, women are more likely to work part-time jobs than men, and part-time jobs are far less likely to offer a 401k plan. I find this troubling. Why do we have a system that makes it so difficult for a part-time worker to save for retirement, yet so accessible for a full-time worker? Is the part-time working mom’s retirement less important than the full-time worker’s?

This is one of the many reasons that the 401k system is ripe for significant reform and should be done with an aim towards making 401k plans more widely available to all workers. Right now, a significant portion of the IRS regulations are designed to encourage business owners to make contributions on behalf of employees. This is without question a noble goal, but the way the regulations are currently written has resulted in many unintended consequences. I have witnessed firsthand many small business owners walk away from offering a 401k plan altogether once they are informed on the cost and the complexity that accompanies having to follow all the IRS rules. This needs to change. Our system should encourage business owners to offer 401k plans, not burden them with costs and administrative tasks. Even SIMPLE IRA plans, which require less administrative work than 401k’s, are still costly as the employer is required to contribute to the employees account at either 2% or 3% of the employees salary. Unfortunately, many small businesses do not have bank accounts flush with cash to assume such risk. Considering that small businesses are such a significant part of the American economy, you would think there would be more urgency to address the fact that 67% of Americans are not contributing to 401k plans. Reforming the 401k regulations with an aim towards making 401k plans more widely accessible to all American workers would without question increase retirement savings, especially for the part-time working mother.

Brian Foley
Brian Foley is the owner and founder of Lighthouse Capital, LLC. Lighthouse Capital is a registered investment adviser that employs a team of financial advisers who work with corporations, families, and individuals. Additionally, Foley is a 2019 Juris Doctorate candidate, with a focus on family estate planning and the ERISA needs of qualified retirement plan sponsors.
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