Petition cites danger to small-business 401k plans
Brett Goldstein, who runs a consulting firm called The Pension Department, is petitioning Congress to make a change that he says would help cash-strapped small employers hold on to their 401k plans. His concern involves top-heavy requirements, which are a highly technical area of tax law. Essentially, these rules ensure that a 401k plan is set up for all employees, not just the business owner or the CEO.
The rules rarely affect a large company, but if a small business falls afoul of them, the employer is required to contribute 3 percent of salary to each worker’s account. That may not be a problem when business is booming, but Goldstein notes that the recession has caused one-third of U.S. employers to suspend their matching 401k contributions. If an employer who’s covered by the top-heavy rules doesn’t contribute the 3 percent, Goldstein says, it will have to shut down its 401k plan. That will strip employees of their best retirement-savings vehicle.
Goldstein wants Congress to temporarily suspend the top-heavy assessments. His website asserts:
A pension bailout to suspend these contributions is desperately needed to avoid mass terminations of 401k plans. Please sign the petition and urge Congress to suspend these mandatory contributions.
I asked Sean Duggan, a professional consultant at Moneta Group, about this issue. He said the top-heavy rules often deter small businesses from adopting 401k plans, but he didn’t know of any companies that were faced with having to eliminate their plans. A temporary waiver, he said, sounds like a good idea.
Duggan also brought up another possible effect of these rules. The mandatory contribution only applies to someone who’s on the payroll at the end of the year. So, perversely, a 401k regulation that’s designed to protect workers may be an excuse to fire some of them.
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
I agree with temporarily “lightening up” on the rules for 401(k) plans.
But more importantly, while Congress is at the business of restructuring taxes, it should at least temporarily reduce both the employer’s and the employee’s share of FICA (Social Security) taxes. And that is particularly true if Congress passes a tax on carbon emissions — which I support as a long-term policy but recognize that it will interfere with economic stimulus efforts in the short term unless it is offset by a reduction in another tax that widely affects consumers and employers.
Long-term, the Social Security program can and should be financed by the FICA tax SUPPLEMENTED BY general revenues — including those collected via the carbon tax.