- By Pat Byrnes
I believe so. However, on November 19th House bill HR 4126 was introduced. If passed into law it would:
- repeal cross-testing
- allow only vested benefits of non highly compensated employees (NHCEs) to be used for discrimination testing, and
- modify the Coverage Rules under IRC 410(b) requiring that a NHCE be considered a fractional employee if he/she works less than 2080 hours in a year.
In essence, this would set retirement plan design back 20 years. At a time when we need to incentivize employers to put in plans this proposed legislation would cause thousands upon thousands of employers to terminate their plans thus leaving millions without employer funded retirement plans.
As you know, cross-testing, also known as tiered allocation, is a way in which profit sharing allocations can be skewed toward particular groups of plan participants by demonstrating that when today’s allocations are brought up to retirement age with interest, they are not discriminatory. For example, and in a very broad explanation, a 20-year-old participant receiving an allocation of $500 today will have more money at age 65 than a 60-year-old participant receiving an allocation of $5,000 today.
Cross testing is also used in combination defined benefit/defined contribution plans including cash balance plans.
In 2001 the U.S. Treasury finalized the cross testing regulations and required a “gateway” contribution ranging up to 7.5% that would be contributed to NHCEs to assure that they were getting meaningful benefits.
The American Society of Pension Professionals and Actuaries (ASPPA) is launching a targeted grass roots campaign to defeat this proposal.
The Bill has 16 co-sponsors. All are members of House Ways & Means, four of which are in California. I have written each of them a letter expressing my opposition. I would suggest you do the same.
Here is there contact information:
Rep. Stark
https://forms.house.gov/stark/webforms/contact.htm
202-225-5065
Rep. Sanchez
http://lindasanchez.house.gov/index.cfm?section=contact
202-225-6676
Rep. Becerra
http://becerra.house.gov/HoR/CA31/Hidden+Content/Email+Signup+Form.htm
202-225-6235
Rep. Thompson
http://mikethompson.house.gov/contact/email.shtml
202-225-3311
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Hi Pat,
ReplyDeleteDangerous legislation. I don't recognize any of the Congresspeople who introduced it. Do you? At this point it looks as if it's been referred to Ways and Means. I'll see if I can get a letter writing campaign going on this coast as well.
Dan van Mieghem