Questions for the 2 leading presidential candidates

In the 30 years since 401(k) plans have gained acceptance, the 401(k) has become the most popular savings vehicle to help American workers achieve financial well-being in retirement. The current tax incentive is a critical component in a small-business owner's decision to set up and maintain a 401(k) plan. For a small-business owner, the ability to use tax savings on his or her contributions to generate all or part of the cash flow needed to pay contributions for other employees, and the deferral of income tax on investment earnings, are critical factors in the decision to adopt and maintain a 401(k) plan.

Will you preserve, or even enhance, the current tax incentives for retirement savings so workers will continue to have access to these proven workplace savings vehicles? If so, how would you plan to do so?

What are your thoughts on the Affordable Care Act and its impact on small business owners so far? What, if any, changes would you make to the application to small businesses?

Under what circumstances would you propose and support a mandatory retirement savings plan, in addition to Social Security, for all working individuals?

Employer-based health coverage meets the health insurance needs of more than 170 million Americans.

Will you commit to policies that (a) support employer-based health coverage; (b) lower the cost of medical care; (c) preserve ERISA, the critical link to multistate coverage; and (d) seek to alleviate the regulatory burden brought by the Affordable Care Act?

In 2003, small-business owners finally were able to deduct all of their health insurance expenses against their income taxes. Unfortunately, we are still only part of the way to real health insurance tax equity for small businesses and the self-employed. Currently, employees are allowed to treat their contributions to health insurance premiums as “pre-tax,” whereas business owners are not (owners of pass-through entities are generally not defined as “employees”). This distinction means that those premium payments for workers are subject neither to income taxes, nor to FICA taxes. While the self-employed owner of a small business can deduct the full premium against income taxes, that entire premium is paid after FICA taxes.

Compounding matters, these business owners pay both halves of the FICA taxes as employer and employee (the so-called self-employment tax) on their own income for a total self-employment tax burden of 15.3%. The average cost — nationally — of a family policy has been pegged at $16,000 for 2013. By treating this business owner the same way that everyone else is treated in this country, we can give entrepreneurs an immediate 15% discount on health insurance premiums, and increase the likelihood of these business owners being able to afford coverage for the balance of their employees.

Would your administration support such a change?

Are you willing to support exploring how pension funds can be used to enhance economic growth and improve our critical infrastructure in a manner that protects the employee benefit security of plan participants?

What would your administration do to ensure that private and government retirement plans encourage or ensure an income stream to participants in retirement?

Given the important role plan sponsors play in improving the financial security for tens of millions of American workers employed by organizations of all sizes, and the increased reliance of all U.S. workers on defined contribution plans (vs. defined benefit plans, which are less prevalent, and Social Security, which is becoming increasingly financially challenged), it is important for workers to be able to contribute toward their own retirements through defined contribution plans.

In view of this reality, as president, will you propose any changes to the Internal Revenue Code deferral limits, which could have a major impact on retirement security for American workers?

Cafeteria plans (IRC Section 125 plans) allow participants to pay for certain types of employee benefits, such as limited-scope health coverage; dependent-care costs (IRC Section 129); group term life insurance; and out-of-pocket medical expenses, such as deductibles, co-pays, eye care and dental care (IRC Section 105) on a pre-tax basis. These important tax savings allow many Americans greater access to health services, as well as allowing them to select the benefits they need the most.

Currently, while employees of large businesses, midsize employers, non-profits, schools, universities and the federal government can take advantage of the valuable benefits provided by cafeteria plans, only small business owners who work in the business are singled out for discriminatory treatment by not being allowed to participate in a cafeteria plan.

Under current law, cafeteria plans can be utilized by all employees, except sole proprietors, partners in a partnership, S-corporation shareholders holding an interest of 2% or greater (and by attribution, their family members) and members in a limited liability company taxed as a partnership.

Do you support allowing small business owners working in their own pass-through entities to participate in cafeteria plans the same way all other employees, officers and managers of any other type of entity are able to participate?

The present qualified retirement plan system has proven to be very successful in providing retirement security for more than 85 million employees in defined contribution plans alone.

However, the system is overly complex and riddled with burdensome, and at times incomprehensible, regulations. The qualified retirement plan system can be even more successful if it is simplified in such a way that the critical tax incentives underlying the system are preserved while the complexities that are unnecessary or that result in burdens that outweigh the desired policy objectives are reduced or eliminated.

Would your administration be in favor of simplifying the qualified retirement plan system while maintaining the existing tax incentives by:

• eliminating top-heavy rules for defined contribution plans (or at a minimum eliminating top-heavy contributions for participants with less than a year of service so that employees can make 401(k) contributions during that first year and by allowing small and midsize companies to have employee pay all 401(k) plans without contributions made by key employees triggering the top heavy rules);
• simplifying the 401(k) discrimination testing referred to as the “ADP” tests; eliminating yearly safe-harbor notices for the 401(k) safe-harbor match and eliminate the 3% non-elective safe-harbor notice entirely;
• having an optional definition for compensation that is easily understood by in-house administrators;
• eliminating required minimum distributions, or at a minimum eliminating them before age 75;
• reducing extensive, burdensome and unnecessary reporting to participants and employers;
• modifying the Qualified Preretirement Survivor Annuity rules so that the age 35 requirement is eliminated.

And would your administration consider the following policy changes:

Promoting increased participation in these plans by changing the law so that all or a portion of a retirement plan distribution is subject to capital gains tax rather than being subject to ordinary income tax rates; and promoting charitable contributions by extending charitable distributions from qualified plans at age 65 (age 65 for IRAs also) of up to $100,000 per year per individual?

Self-funding is the largest source of health benefits (much larger than insurance company “insurance” policies). As much as 80% of workers in non-federal employee benefit health plans use some form of self-funding, mostly under ERISA. Congress wisely created ERISA with strict fiduciary and transparency requirements regulated by the IRS and the Department of Labor. Self-funding also allows nationwide flexibility to design health plans for the needs and cost effectiveness of each employment group or employees such as those under collective bargaining agreements. Government policy has been eroding some of the flexibility, which has the effect of unintended harmful consequences on the benefit plans of the vast majority of Americans.

What role do you envision for this successful self-funding coverage option?

A number of states are considering legislation that would implement state sponsored retirement plans for private employees. While sympathetic to the coverage issue, many employers are concerned this movement undermines the pre-emption provision of ERISA and would result in administrative and cost burdens from having to track various retirement proposals in multiple states.

How would your administration address this issue?