WASHINGTON - Political correctness might hinder efforts by pension lobbyists and small-business groups to seek changes in pension laws for top-heavy retirement plans.
Pension lobbyists and small business groups say eliminating the top heavy rules, or at least loosening them, would encourage small businesses to set up pension plans. They point to the dearth of pension plans among small businesses (87% of workers in businesses with 20 or fewer employees have no pension coverage, according to the American Society of Pension Actuaries, an Arlington, Va., trade group) and the ostensible concern among lawmakers for creating more pension plans.
And a U.S. Chamber of Commerce survey conducted last summer identified the rules as regulatory overkill and the biggest deterrent to small businesses setting up pension plans.
Lawmakers "just keep pointing out the need for expanding coverage, and yet they keep expanding the rules that work to do the opposite," said David Kemps, manager of employee benefits policy at the U.S. Chamber of Commerce in Washington.
But, some congressional staffers who did not wish to be identified expressed concerns about easing rules for plans that essentially cover the top brass, while doing little to provide pension benefits for rank-and-file workers.
"The top heavy changes are big changes and changes that really need to be done, but because they're controversial . . . they do need to be out there for a few years" said one Hill staffer.
Nonetheless, changes to the rules are expected to be part of a bipartisan pension package to be introduced by Sens. Robert Graham, D-Fla., and Orrin G. Hatch, R-Utah, around the end of May, although there is little likelihood the changes will be included in any budget deal this year.
Under current top heavy rules, which attempt to reduce the disparity between employer-provided pensions for top employees and low-paid workers, companies must accelerate vesting for all employees to between three and six years, from five and seven years. The rule also requires companies to contribute at least 3% of pay for all workers covered by the pension plan - regardless of whether the employees contribute - if 60% of plan assets cover "key" or top-paid employees.
Key among the proposed changes the groups favor are:
Lowering the bar on employer contributions for top-heavy plans. Under the current rules, employers do not get credit toward the 3% contribution required for all employees if they already match employee contributions.
Repealing the "family attribution" rules for top-heavy plans. The rules treat all family members as highly paid or key employees, irrespective of how much money the members actually make. Congress did not include top-heavy plans when it repealed similar "family aggregation" rules last year as part of the Small Business Job Protection Act. Small-business lobbyists want Congress to stop counting family members, often not top earners, as "key" employees.
Reducing outright the contributions employers must make for all employees to 2%, making them comparable to the SIMPLE plans.
Raise the bar for top-heavy plans from those with 60% of assets covering top earners to only those with 90% or more of assets covering high-paid employees. "Obviously the higher you go, the less employers would be covered," Mr. Kemps said.
Exempting plans that meet 401(k) safe harbors outlined in last year's law. Under the proposal, employers that contribute 3% of pay for all employees or 4% as a matching contribution for employees who also contribute, would be exempt from the top heavy rules.
