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 A new bill (H.R. 5160) is designed to encourage small businesses to offer retirement savings plans to their employees by amending the Internal Revenue Code and the Employee Retirement Income Security Act (ERISA) to provide for tax credits and payroll deductions.
The purpose of the bill, Small Businesses Add Value for Employees (SAVE) Act of 2008, is to increase incentives for small business to offer individual retirement accounts and tax code Section 401(k) plans. Only 14 percent of small businesses offer a Section 401(k) plan and 63 percent don't offer any plan at all.
The bill would update the rules governing simplified employee pension (SEP) plans and Section 401(k) plans to ensure they continue to be attractive to small business owners.
Under SEP plans, employers establish an IRA account for eligible employees. This account is treated as a defined contribution plan subject to certain simplified qualification requirements that make them easier to administer.
The bill would offer "newly participating employers" a tax credit for 50 percent of the start-up costs, plus a one-time $25 tax credit for every employee who is enrolled in the savings program.
The bill would amend ERISA Section 3(2) by adding a new subparagraph "(C)" to provide that an individual retirement plan, as defined in tax code Section 7701(a)(37), will not be considered a pension plan merely because an employer establishes a payroll deduction program for the purpose of enabling employees to make voluntary contributions to the plan account or annuity.
Contact your Rea team for more guidance on this issue.
-By Paul McEwan, CPA, MT (Pension Services, New Philadelphia office)
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