OUR THOUGHTS ON:

Proposed IRS Legislation Threatens Small Business Retirement Plans

401(k) Plans|Benefits|Wealth Management

By Jason Lumpkin

The IRS recently released a proposed regulation that could be unusually threatening to small business retirement plans.

In summary, the proposal would impose an unreasonable requirement on any retirement plan that utilizes a tier-based contribution formula, also known as a new comparability or cross-tested contribution allocation method.  Specifically, under the proposed regulation, each contribution rate provided under the tier-based formula must be applied to a job category that is (1) based on reasonable business criteria, and (2) includes more than one person.   Because of their size, many small businesses often have only one person who fits within what is otherwise a reasonable job category. A job category such as this would be considered reasonable in a large company (because it applies to more than one person), but unreasonable in a small company (because only one person has that job).

This new requirement unfairly targets small business retirement plans. For this reason, SDAdvantage Retirement Solutions has joined the efforts of American Retirement Association (ARA) in its effort to inform the Treasury Department that this legislation could be detrimental to small business retirement plans.

If you or your company would be interested in joining this effort, I encourage you to visit www.savemyplan.org created by the ARA to increase awareness of this issue. From this page, you will learn of the many grassroots tactics being employed with hopes of preventing this proposal from eventually being passed by Congress.

Contact us with questions on the proposed regulation and visit our Qualified Retirement Plan services page to learn about the services that the Schneider Downs Wealth Management Advisors offer.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice.  Please note that individual situations can vary.  Therefore, this information should be relied upon when coordinated with individual professional advice.           

 

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The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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