Reform Bill Removes "Trap Door" For Small Business

March 29, 2001 ( - Representative Ben Cardin (D-Md.) made the case for pension reform Wednesday, focusing on the needs and benefits of small business before a House subcommittee.

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Testifying before the House Committee on Small Business, Cardin said the Comprehensive Retirement Security and Pension Reform bill (HR 10) should be able to move through the House as a single bill, and has the support of Ways and Means Committee Chairman Bill Thomas (R-Ca.) to do so, according to BNA.

Coming Attractions?

Cardin said he hoped to restore to the bill the tax credit to help small businesses with startup administrative costs of launching a pension plan.  That provision had been in the initial version of the bill introduced in the last Congress, but was omitted from the current version.  Cardin explained that he and Representative Portman opted to stay close to the version that passed the House last July (401-25). 

Both ranking minority member Nydia M. Velázquez (D-N.Y.) and Chairman Don Manzullo (R-Ill.) indicated they might appeal to the Ways and Means Committee to include the tax credit in the final bill. However, several members voiced concern about whether the bill would help the smallest of small businesses.

Also testifying before the subcommittee was Dallas Salisbury, president and CEO of the Employee Benefit Research Institute, who noted a 2000 statistic indicating that a tax credit was a top factor that would make a small employer seriously consider offering a pension plan.  That factor was second only to an increase in business profits.

Those sentiments were echoed by Paula Calimafde, a tax attorney representing the Small Business Council of America, Small Business Legislative Council, and American Society of Pension Actuaries.  Calimafde said few things would change an employer’s mind about offering a pension plan, but the small business tax cut is one of them.

Both expect the small business tax credit to be included in the Senate version of the bill when it is introduced.

Trap Door

Cardin noted several changes already in the bill that would greatly simplify current plan administration, removing “traps in the law” that have kept small business owners from embracing pension programs.

Among the changes highlighted were:

  • Clarifying that safe-harbor 401(k)s are not subject to top-heavy testing
  • Simplifying the definition of “key employee” under the top-heavy rules to a 5% owner or an officer of the company making more than $150,000/year
  • Reducing the “look back” for top-heavy testing to one year from the current five year requirement
  • Increased contribution deductibility for employers, raising the current 15% of compensation limit to 20% of compensation, and removing employee contributions from the calculation
  • Increased portability between pension plans
  • Exempting small businesses from IRS user fees
  • Lowering Pension Benefit Guaranty Corporation (PBGC) premiums for small businesses.
  • Increased contribution limits under section 415 to 100% of compensation from 25% under current law, as well as an increase in the dollar limit (to $40,000 from $35,000)
  • Exempting plans with less than $250,000 in assets from filing IRS Form 5500 (the limit is $100,000 under current law)
  • Allowing plans with fewer than 25 participants to use Form 5500-EZ
  • The $5,000 annual catch-up contribution to individual retirement arrangements for people over age 50.

The House bill currently has 280 cosponsors with substantial support from both sides o