Protect and Strengthen Retirement Plans; Preserve Small Business Tax Benefits
Longer life expectancies have given rise to a need for increased retirement savings. The present system has been remarkably successful in providing retirement security. It is critical that the small business voluntary retirement plan system be promoted. The SBCA supports maintaining current contribution limits and encouraging the use of 401(k), profit sharing, defined benefit or cash balance plans. Contribution limits on the Simple or other IRA based plans should not be increased since these plans allow easy withdrawal access to IRA owners while providing neither ERISA safeguards, preselection of prudent investment choices nor investment education. The system needs to be freed up from required annual amendments and multiple notices that do little, if anything, to improve the system for plan participants.
In the upcoming debate on deficit reduction, the retirement plan system should not be used to generate revenues. The SBCA is committed to assisting Congress in simplifying the retirement plan laws which are too complex. These laws can be simplified without undoing the valid policy concerns underlying the law and the tax incentives inherent in the system which are the primary motivation for small business owners to sponsor these plans.
Other small business tax benefits should not be abolished while those for bigger businesses are preserved.
SBCA Goal - Preserve, strengthen and simplify the voluntary small business retirement plan system as well as other valuable small business tax benefits.
Repeal 409A for Small Businesses
It may not be an understatement that 99% of small business know nothing whatsoever about Section 409A. 409A is a trap for the unwary in the small business context while serving no valid policy purpose that can justify the cost of complying with this complex and unnecessary law. 409A was intended to halt the abuse of management removing huge sums of money through non-qualified deferred compensation plans to the detriment of the stockholders of companies like Enron and WorldCom. Because management and ownership are basically identical in the small business context, there is no abuse in the small business world. 409A prevents common sense economic arrangements that are sensible for the employees and small businesses and pose no opportunity for abuse. The vast majority of small businesses have no idea that their employees could be subject to huge penalties on money that these employees could very well never receive nor even be entitled to receive due to future events. Response on this issue has been difficult to obtain because almost no one understands it enough to complain to members of Congress.
SBCA Goal - Repeal 409A for small business to rid them of unnecessary burdens and unfair penalties.
Estate Tax Certainty
For 2011 and 2012, estates below $5 million pay no estate taxes, those with assets over $5 million pay 35% on the assets above the $5 million threshold. The gift tax and Generation Skipping (GST) exemptions are also $5 million. There is a new "portability" provision that allows the second spouse’s estate to take advantage of any exemption (i.e., $5 million) that was not used in the 1st spouses’ estate. This law is set to expire in 2013 at which time the estate and gift tax exemptions are scheduled to drop to $1 million (the GST will be in the $1.3 million range) and the tax rate will jump up to 55%. The portability provisions will be eliminated.
Consensus – Estate taxes cannot be made into an extender item. Proper estate planning requires certainty in the law. The present status with a prospective drop to $1,000,000 exemption is creating havoc and wasteful legal and other planning expense.
SBCA Goal – Have the 2011 – 2012 law extended permanently. Keep the exemption level from dropping to the $1 million level – work to keep it as high as possible.
Fix Health Care Reform
The SBCA is committed to ensuring that small business owners and employees are able to access quality health care without having the government design and/or take over their health care plans. To this end, the SBCA will work with Congress, by providing its significant expertise in the health care small business market. The cost shifting from the government to the private sector and in particular, small business, needs to be remedied. The discrimination tests imposed on small businesses should either be eliminated or
postponed at least until the exchange system is in place. Small businesses lack the buying power of big business and government, so they are forced to pay more to cover their employees. The "Cadillac" tax applies to expensive health insurance, but it is unfair to apply it to small businesses, which aren’t overbuying, but are just being overcharged because they have less negotiating levererage. The "Cadillac" tax needs to be either repealed or not be applicable to smaller businesses.
Needed modifications should not be put off. To avoid an impending "brain drain," it is important that we act quickly so that we retain our high quality medical care and specialists throughout the country, as well as advances in medical knowledge, technology and new treatments and cures.
SBCA Goal – Work with Congress to improve the health care law.
Level the playing field between large and small entities by allowing small business owners to participate in cafeteria plans. Due to a narrow IRS interpretation of the word "employee" (for purposes of cafeteria plans only), the vast majority of small business owners are not eligible to participate in cafeteria plans. Only owners of C corporations or less than 2% owners of S corporations are allowed to participate. This change also has to be made to the new SIMPLE cafeteria plan law - a law designed for small businesses to make it easier to sponsor cafeteria plans. Unfortunately, the essential step of allowing owners to participate was not included in the new law! Thus, the SIMPLE cafeteria plan is really only available to small businesses that operate as C corporations. In the last decade, this has been the least favorite choice of entity for small businesses.
Further, in an effort to promote individuals to save for long-term care (rather than relying on the government to foot the bill), long-term care insurance should be made a qualified benefit under a cafeteria plan. Currently cafeteria plans can allow employees to select life, disability, health care, vision, dental and supplemental insurance on a pre-tax basis. Only long-term care is not allowed (most likely because the cafeteria plan law was in place prior to the long term care insurance market). Shifting more of the cost of long-term care from the government to individuals willing to save is fiscally responsible, both for those individuals, and for the government.
SBCA Goal - Allow all small business owners to be eligible to participate in cafeteria plans. Allow long-term care insurance to be a qualified benefit in a cafeteria plan
Need for Certainty, Stability and Fairness in the Tax Law
SBCA says death to patches, sunsets, overly complex and unfair laws - particularly those that are used by IRS primarily against small businesses. Strict liability statutes should be eliminated and taxpayers should have the right to access the U.S. Tax Court before the
IRS can collect taxes or penalties. SBCA is greatly concerned about the erosion of due process in the small business tax context.
SBCA goal - Educate the Congress on the pressing need for certainty and stability in the tax laws. Protect small businesses against abusive tax laws and ensure that they can all receive their day in court, not just those who can afford to pay all taxes and penalties first.
Repeal New 1099 Filing Requirements
Since the SBCA identified this as a top priority, this issue has been properly resolved.
These priorities were selected by approximately 60 board and advisory board members from across the country. Each member was given an opportunity to explain issues that were affecting small and privately owned businesses in the tax, employee benefits and health care areas. New ideas that would assist small businesses were discussed. After discussion on all of the ideas and issues, the group voted on our top 7 priorities. Most of our board and advisory board members are expert advisors to small businesses and most represent hundreds to thousands of businesses in their particular area of expertise – accounting, law, insurance, plan administration, actuarial or employee benefits consulting. Many are part of major firms or associations in the country which represent tens of thousands, if not more, small businesses. The reach and knowledge of our board members is staggering.
The SBCA has expanded issue papers on all of these topics and would be pleased to send them to you. Please e-mail calimafdATpaleyrothman.com to obtain the papers you would like.