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

The American Retirement Association (ARA), an Arlington,Va.-based nonprofit, fears a provision in a rule proposed by theDepartment of Treasury and Internal Revenue Service (IRS) will makeit more difficult for businesses to form new retirement plans or keep the ones they currentlyhave in place.

The rule, introduced in late January, includeslanguage that would do away with a nondiscrimination testingprocess for Closed Defined Benefit Pension Plans and add areasonable business classification requirement on cross-testedplans, forcing businesses to provide criteria of more than oneemployee – which could be problematic for companies that only haveone employee.

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

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

In addition to the new regulatory burden, the group alsoexpressed concern it could raise costs on businesses by more than75 percent.

If the rule is implemented, plans would only be ableto use cross-testing if the minimum contribution requirementsare met, which the group says currently benefit non-highlycompensated employees.

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

A public hearing on the rule is slated to be held by the IRS May19.

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