Legislation out of Washington, often with temporary changes, is keeping small business retirement plans in flux
For the small business owner looking to provide and maintain a good retirement plan for employees, keeping one eye on Washington has become more important than ever before.
Denver-based retirement specialist Bruce Tanner could only chuckle when asked about the latest trends in small business retirement plans.
“Confusion, misunderstanding and lack of communication,” he said.
Tanner had just finished an audit with Internal Revenue Service officials and, needless to say, he did not find the experience enlightening.
“I find the more encounters I have with the IRS over some of these issues, the worse it gets,” Tanner said. “The IRS has been tripping over itself trying to figure out whether or not these legislative acts have been reviewed and they really don’t understand whether or not they have been finalized.”
While regulations over retirement plans have been evolving over the past few decades, they underwent major revisions in 2001 under the Economic Growth and Tax Relief Reconciliation Act.
While most of the hoopla surrounding the bill centered on the sizable tax cuts that President Bush pushed through in the wake of his victory the previous year, there were nonetheless several major changes in limits that many retirement specialists felt went a long way toward encouraging savings.
Among the changes enacted were beneficial provisions such as higher contribution limits for 401(k) and similar plans, a $5,000 catch-up contribution for individuals over the age of 50 and the saver’s credit for low-income workers.
But many experts in the field feel the temporary nature of these changes make retirement planning these days more challenging than ever.
Ed Ferrigno, vice president of the Profit Sharing/401(k) Council of America, says that many of the provisions will expire at the end of 2010 or earlier unless they are made permanent by Congress.
“Employers need the certainty that EGTRRA permanency will provide, and baby boomers need to take advantage of increased savings opportunities beyond 2010,” Ferrigno says.
Other favorable EGTRRA changes include improved portability for workers switching employers and what Ferrigno terms “partial relief under the top heavy rules that continue to dampen retirement plan coverage in the small business community.”
Josh Wood, a retirement specialist based in Amarillo, Texas, says his fellow associates in Steve Wood Associates will be stressing the advantages next year that Roth 401(k)s will provide future retirees looking to supplement their regular retirement plans.