It looks like Congress will lift the heaviest sections of the
"top heavy" rules that stop many small businesses from
offering pension plans. But that's only one of the reforms in a
bill (H.R. 1102) that was working its way through Capitol Hill at
the end of the 2000 session. The bill passed the House on July 19
by a vote of 401-25, making passage by the Senate a near certainty.
Ditto for President Clinton's signature.
"Reform is critical if we are to encourage businesses to
offer a pension benefit now, while many workers still have time to
build for their retirement," says Bruce Josten, executive vice
president of the U.S. Chamber of Commerce. "Without reform,
more workers will be forced to rely on Social Security, which is
already facing financial difficulty."
The bill contains both large- and small-business-friendly
provisions that Reps. Rob Portman (R-OH) and Benjamin Cardin (D-MD)
have been pushing since the 1995 White House Conference on Small
Business made pension reform the No. 7 priority issue out of a
total of 60. Portman explains that less than 20 percent of small
businesses with 25 or fewer employees offer any kind of pension
coverage today.
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James Delaplane of the Association of Private Pension &
Welfare Plans says entrepreneurs have been hesitant to establish
company pension plans because of limits on contributions. The
Portman-Cardin bill increases the maximum contribution by an
individual (employee or employer) to a 401(k)-type plan from
$10,500 to $15,000 by 2005. The maximum total contribution from
company and individual would go from $30,000 to $40,000.
The bill also includes regulatory relief provisions. The key
ones have to do with the "top heavy" rules, which require
small businesses to make at least a 3 percent contribution to
pension plans for lower-paid employees and vest those employees
faster than would be the case with a non-top-heavy 401(k). Those
regulations were put in place so companies couldn't
discriminate in favor of their highest-paid workers. Delaplane says
401(k) "safe harbor" plans, which today are subject to
the top-heavy rules, would be totally exempt under Portman. Other
changes would make it easier for companies to calculate whether
they're subject to those rules.
"H.R. 1102 preserves the safeguards for non-highly
compensated employees so that they are fully protected, while
stripping away the unnecessary and overlapping rules so that true
simplification is achieved," says Paula Calimafde, a pension
lawyer and member of the board of directors for the Small Business
Legislative Council. (For information on complying with current
pension plan regulations, see "Tax
Talk".)
Community development
breaks: In an effort to goose development of poor urban
and rural communities, Congress will pass a bipartisan proposal
called Community Renewal. The price of passage was building on the
concept of the Empowerment Zones that President Clinton signed into
law when he came to office. The first 40 Renewal Communities will
be in poor areas and be notable for regulatory and tax relief given
to companies who invest there. For example, individuals will pay no
capital gains taxes on the sale of renewal businesses or business
assets held for more than five years. The nine new Empowerment
Zones allowed under the bill will offer some of the same incentives
the zones now offer, plus upgraded benefits like a 15 percent wage
credit for companies, which has been limited to only some of the
zones. The House passed the bill (H.R. 4923) by a vote of 394-27 in
late July, and the Senate was expected to follow suit at press
time.
Merger fees may be reduced:
The House Judiciary Committee passed a bill (H.R. 4194) that
reduces the regulatory requirements on small companies that merge.
In many instances, the Securities and Exchange Commission
wouldn't have to be notified in the event of a merger, for
example.
Stephen Barlas is a freelance business reporter who covers
the Washington beat for 15 magazines.
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