Help Stop a Small Plan Killing Regulation!

By Judy Miller • March 16, 2016 • 0 Comments
Buried in a recent Treasury Department regulation is a provision that will make it harder for small businesses to form new retirement plans or maintain their current ones.

The regulation, in proposed form, imposes a new “reasonable classification” requirement on cross-tested plans. To be considered “reasonable” under the proposed regulation, a classification has to be based on reasonable business criteria and has to include more than one person. Many small businesses have only one person who fills a role that would be considered a “reasonable classification” for a large company, but will not be “reasonable” for a small company. In other words, this new requirement unfairly targets small business retirement plans.

Ironically, this proposal, which is likely to undermine the creation and continued existence of small business plans, was included in a Treasury Department regulation ostensibly designed to make it easier for large corporations who have closed their defined benefit plans to new entrants to maintain those plans. More information about the “reasonable classification” requirement is available here.

The Impact

Not only would this proposal set aside an objective numerical nondiscrimination testing process that has been in place for more than two decades, it would result in a dramatic increase in costs for many small business retirement plan sponsors — in many cases 75% or more.

Make no mistake — these cross-tested plans already provide great benefits to non-highly compensated employees. A plan can only use cross-testing if minimum contribution requirements are met, a “minimum gateway allocation” that typically results in non-highly compensated employees receiving at least 5% of pay under a cross-tested defined contribution plan, even if cross-testing would on its own require a lesser contribution. This contribution is in addition to any matching contributions made under a plan. Additionally, if a company has a defined benefit plan in combination with a defined contribution plan, this minimum rate increases on a sliding scale up to 7.5% of pay. The typical defined contribution plan provides non-matching contributions of less than 4% of pay.

Take Action

We need your help in making it clear to the Treasury Department — and to your representatives on the Hill — that this small employer plan killing regulation needs to be removed from the proposed regulation before it undermines the retirement security of thousands of small business workers.

Tell them you want to “save my plan” at Take advantage of pre-drafted letters that you can use or edit as you see fit to get your message across. We’ve made it easy for you to direct your letter to the appropriate members of Congress — and to petition the Treasury Department for its removal as well.

Don’t delay — small business retirement plans are under attack… again. Speak out at

Judy Miller is the Director of Regulatory Policy at the American Retirement Association.