Politics

Proposed Gov’t Reg Could Pose Major Threat To Small Business Retirement Plans

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Juliegrace Brufke Capitol Hill Reporter
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The American Retirement Association (ARA), an Arlington, Va.-based nonprofit, fears a provision in a rule proposed by the Department of Treasury and Internal Revenue Service (IRS) will make it more difficult for businesses to form new retirement plans or keep the ones they currently have in place.

The rule, introduced in late January, includes language that would do away with a nondiscrimination testing process for Closed Defined Benefit Pension Plans and add a reasonable business classification requirement on cross-tested plans, forcing businesses to provide criteria of more than one employee – which could be problematic for companies that only have one employee.

Companies would have to test on a ratio percentage basis versus testing on an average benefits basis, which ARA says will make the complicated process even more convoluted.

“Many small businesses have only one person who fills a role that would be considered a ‘reasonable classification’ for a large company, but will not be “reasonable” for a small company,” Brian Graff, CEO of the American Retirement Association, said in a statement Tuesday. “In other words, this new requirement un-reasonably targets small business retirement plans.”

In addition to the new regulatory burden, the group also expressed concern it could raise costs on businesses by more than 75 percent.

If the rule is implemented, plans would only be able to use cross-testing if the minimum contribution requirements are met, which the group says currently benefit non-highly compensated employees.

“Discrimination tests should be employer size neutral,” Graff continued. “This small employer plan killing proposal needs to be removed from the proposed regulation before it undermines the retirement security of tens of thousands of workers.”

A public hearing on the rule is slated to be held by the IRS May 19.

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