AICPA Sends Senate Tax Reform Working Group Eight Recommendations to Simplify Retirement Plans

March 27, 2015

Washington, D.C. (March 27, 2015) – The American Institute of CPAs (AICPA) yesterday submitted eight recommendations to the Senate Committee on Finance Tax Reform Working Group on Savings and Investment that would simplify employer-sponsored retirement plans and individual retirement accounts.

In the letter to the working group, Troy Lewis, CPA, CGMA, chair of the AICPA Tax Executive Committee, wrote, “Because qualified retirement plans are such a large source of retirement savings for many Americans, it is important that the tax rules governing the plans are as simple as possible.” 

Lewis noted that the Internal Revenue Code “provides for more than a dozen tax-favored employer-sponsored retirement planning vehicles, each subject to different rules pertaining to plan documents, eligibility, contribution limits, tax treatment of contributions and distributions, availability of loans, portability, nondiscrimination, reporting and disclosure.”

The eight recommendations are:

  • Create a uniform employee contributory deferral plan;

  • Eliminate certain nondiscrimination tests on employee pre-tax and Roth deferrals for 401(k) plans and matching contributions;
  • Eliminate the top-heavy rules;
  • Create a uniform rule regarding the determination of basis in distributions;
  • Create a uniform attribution rule;
  • Create a uniform definition of owners;
  • Change the required minimum distribution rules during life and remove half-year age references, and
  • Create uniform rules for early withdrawal penalties.

Lewis concluded, “Small businesses are especially burdened by the overwhelming number of rules inherent in adopting and operating a qualified retirement plan.  While most small businesses use advisors to determine the best plan for their needs and the needs of their employees, participants receiving distributions are often ill-equipped to deal with the variety of planning opportunities available to them.  Our suggestions are designed to encourage the operation of qualified retirement plans by small business, expanding retirement savings for all employees.”