The future of “cross tested”
retirement plans, a staple of entrepreneurial small businesses, hangs in the
balance because of pending legislation currently being considered by the House
Ways and Means Committee and the Senate Finance Committee.
At issue is The Retirement Fairness Act of 2009, which proposes the
elimination of cross testing in addition to other pension reforms.
Cross testing allows profit
sharing plans to take into account a participant’s age and projected
retirement benefits in determining annual employer plan contributions.
This permits an extra allocation for older participants (frequently the
business owner herself) which is an incentive for small businesses to maintain
such profit sharing plans.
Congressman Lloyd Doggett of
Texas had taken aim at cross tested plans to (in the words of the bill)
“prevent the overstatement of benefits payable to non-highly compensated
employees.” Eliminating cross
testing is viewed by Congressman Doggett and the bill’s co-sponsors as closing
a loophole that permits unfair treatment of lower paid workers.
The American Society of Pension
Professionals and Actuaries, with the help of the grassroots support of small
business plan sponsors, convinced lawmakers that eliminating cross testing would
cause thousands of retirement plans to be terminated and would adversely affect
millions of American workers. For
now, the proposal to eliminate cross testing will not be included in the bill.
But Congressman Doggett will be allowed to conduct future hearings on
cross testing, so the issue may not go away.
With members of the Obama
Administration such as Peter Orszag, Director of the Office of Management and
Budget, on record as being opposed to cross testing, it is possible that cross
testing could be a target of future legislation.
So, small businesses may have dodged a bullet – but stay tuned for