Setrics Tracker

Updated: Take Action to Save Small-Employer Retirement Plans


On April 14, the Treasury Department and IRS decided to withdraw the sections of the non-discrimination rules that targeted cross-tested plans.  Thank you to plan sponsors who shared this information and took action to protect these important types of retirement plans.

The Issue

Retirement plans are governed by rules and regulations set out by the Department of Labor, Internal Revenue Services and the Treasury Department. A recent, proposed, Treasury Department regulation contains a provision that will make it harder for small businesses to form new retirement plans or maintain their current ones.

The regulation imposes a new “reasonable classification” requirement on cross-tested plans, sometimes called new-comparability plans. This “reasonable” business criteria has a requirement that a retirement benefit plan include more than one person in its classification criteria. The new regulation should work for large companies, but will not be “reasonable” for small companies. Many small businesses have only one person who fills a role that would be considered a “reasonable classification.” For these smaller plans it will be much more difficult to pass the general non-discrimination test under Section 401(a)(4).  In other words, this new requirement may discourage small business from adopting these types of plans.

Cross-tested plans provide great benefits to rank-and-file employees in addition to an owner or group of owners. A plan can only use cross-testing if minimum contribution requirements are met. In many cases this requires that rank-and-file employees receive at least 5% of pay as an employer contribution to the plan. This contribution is in addition to any employer matching contributions made under a plan. The rank-and-file employees stand to miss out on the benefits of these plan designs in addition to owners.

The Impact

This proposal would set aside a retirement plan feature that has been in place for more than two decades. But more importantly, it would result in a dramatic increase in costs for many small business retirement plan sponsors.

Take Action

We need your help in making it clear to the Treasury Department, through your state representatives in Washington, that this damaging small employer plan regulation needs to be removed from the proposed regulation before it undermines the retirement security of thousands of small business workers.

Tell them you want to “save my plan” at This website, built by the American Retirement Association, contains pre-drafted letters that you can use or edit as you see fit to get your message across. They have made it easy for you to direct your letter to the appropriate members of Congress — and to petition the Treasury Department for its removal as well.

Speak out at