ASPPA: Employers need a break from required contributions

ASPPA is asking the government to give employers a break from rules that require many companies to contribute 3% to their employees’ 401(k) plans.
FEB 20, 2009
By  Bloomberg
The American Society of Pension Professionals & Actuaries is asking the government to give employers a break from rules that require many companies to contribute 3% to their employees’ 401(k) plans. Officials at the Arlington, Va.-based ASPPA wrote a letter to the Department of the Treasury and the Internal Revenue Service asking that employers who are required to make a 3% contribution to their employees’ plans so they can get safe-harbor provisions be allowed to suspend the contribution because of economic hardship. Under the Pension Protection Act of 2006, employers who contributed 3% annually to employees’ 401(k) plans didn’t have to meet “non-discrimination” or “top-heavy” rules meant to prevent plans from favoring its higher earners. In the past, the IRS had limited the maximum deferral by highly compensated employees to make sure that lower-paid employees received at least a minimum benefit in plans where most of the assets were owned by higher-paid key employees. If companies failed to pass certain tests, they were required to return money to highly compensated workers. Now, employers who contribute the 3% to workers don’t have to take these tests. But the problem, according to ASPPA officials, is that many companies are struggling to contribute 3% to their 401(k) plans. Under existing regulations, employers who can’t afford to contribute to their plans have no other recourse than to terminate the retirement plans. The ASPPA is asking the government to allow employers to suspend their contributions though they would still have to show that the firm isn’t favoring highly compensated workers. “It's pretty bad, and a lot of employers are really considering it. Times are tough,” said Brian Graff, the ASPPA’s executive director and chief executive. “You're talking about a lot of employers who are freezing payroll, and 3% is a lot of money,” he said.

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