This is another example of government intervention having unintended results. Business owners who wish to make the government smaller need to improve the retirement plan they offer their employees. This requires the assistance of experts in the field.
Use of wages disincentive for 401(k) programs
But in a letter sent Tuesday to the IRS, the American Benefits Council said using wages, as reported in Box 1 of the W-2 wage and income statement, to determine if the required premium contribution is affordable “seems to create a possible disincentive for employers regarding programs and features designed to increase employee participation” in 401(k) plans.
“Thus, for example, someone who defers amounts into a 401(k) plan will have lower wages reported in Box 1 of the Form W-2 and, as a result, his or her employer-provided coverage…is more likely to be unaffordable when compared to another employee that makes fewer or no elective deferrals,” ABC said in its letter.
Given the increased likelihood of failing the affordability test and being hit with stiff financial penalties, employers might pull back on programs, like automatic enrollment, that lead to increased employee participation in 401(k) plans, the group added.
A simple remedy to the problem, ABC suggested to Treasury Department regulators, would be—for the purpose of satisfying the W-2 health care premium affordability test—to allow employers to count employees’ pretax benefit plan contributions as wages.
The saving rate for retirement is far too low now, let’s not make it worse. Will this result in Americans relying more on the government for their financial futures?
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- After a two-year hold on 401(k) matching, employers come back from recession ready to help plan participants save. – (401kplanadvisors.com)
- Majority of Retirement Plan Sponsors Do Not Feel Prepared for New Fee Disclosure Rules (401kplanadvisors.com)
- New Regulations Might Boost Your 401(k) Balance In 2012 (forbes.com)