Congress should consolidate and simplify the types of tax-favored retirement plans now available to small business owners to minimize the cost and administrative burden imposed by the plans, the American Institute of CPAs told Congress.
In written testimony submitted for the record of the House Small Business Committees Oct. 2 hearing on retirement savings for small employers, AICPA Tax Executive Committee chairman Jeffrey A. Porter suggested several ways to simplify the complexity of the retirement planning universe.
When a small business grows and begins to explore options for establishing a retirement plan, the alternatives, and the various rules, can become overwhelming, he wrote in his testimony. There are too many options that businesses need to consider before deciding which plan is appropriate for them. Some plans are only available to employers with a certain number of employees, whereas other plans require mandatory contributions or create significant administrative burdens. Such administrative burdens include annual return filings, discrimination testing, and an extensive list of notice requirements with associated penalties for failures and delays in distributing such notices to employees.
To determine which plan is right for their business, owners must consider their cash flow, projected profitability, anticipated growth of the work force, and expectations by their employees and co-owners, Porter added. The choices are overwhelming, and many are too complex or expensive for small business owners.
He identified the following possible measures for simplifying the number and complexity of the various types of retirement plans:
Create a uniform employee contributory deferral type plan.
Eliminate the nondiscrimination tests based on employee pre-tax and Roth deferrals for 401(k) plans.
Create a uniform rule regarding the determination of basis in distributions.
Create a uniform rule of attribution.
Create a uniform definition for terms to define owners.
Eliminate the required minimum distribution rules.
Create uniform rules for early withdrawal penalties.