to circumvent the limitations imposed by law by such a 52 formalistic step. The result is that a majority of professional persons have not incorporated. For these people, the discrimination that exists has only been compounded. Given the ability of self-employed persons to avoid the H.R. 10 restrictions through incorporation, it is apparent that the special restrictions and limitations which only apply to self-employed plans are no longer necessary or desirable. This is particularly so in view of the complex and comprehensive regulatory structure which ERISA has made applicable to all retirement plans. Why, for example, should the self-employed person be able to contribute and deduct a lesser amount to a defined contribution plan than a corporation may for one of its employees? Similarly, why should the self-employed person be entitled to a significantly smaller annuity after retirement under a defined benefit plan than a corporate employee? ERISA set a definite limitation on the total 52 See Nolan, The Small Professional Group Under ERISA, 22 The Practical Lawyer, No. 6, p. 25, September 1, 1976. amount of annual contributions under a defined contribution plan and the annual benefit under a defined benefit plan. These limitations should be uniformly applicable to all plans. The particular limit on contributions or benefits should not depend on whether an individual has chosen to conduct his business through the vehicle of a corporation. American Bar Association Recommendations It is the position of the American Bar Association that Congress should eliminate all the discriminatory limitations and conditions presently applicable to self-employed plans. ERISA has imposed on all qualified retirement plans comprehensive and complete requirements with respect to coverage, vesting, fiduciary responsibility, prohibited transactions, commencement of benefits, and other matters. There is no need for the additional super-structure of complex, special H. R. 10 limitations which are found scattered throughout the Internal Revenue Code, some applying to all self-employed persons and some only to owner-employees, without any clear rationale for such distinctions. The elimination of the special limitations and restrictions now applicable to retirement plans for the self-employed would promote the goal of equal tax treatment of similarly-situated individuals. Moreover, major simplification of our tax laws would be achieved by elimination of the special structure in the Code for H. R. 10 plans, either in whole or in large part. Equally important, removal of this discrimination against the self-employed will provide a powerful incentive for adoption of new qualified retirement plans by unincorporated businesses. This will extend the coverage of the private pension system to many low-income persons not presently protected by such plans. The American Bar Association is firmly committed to this objective which is embodied in the following outstanding resolution of the Association: BE IT RESOLVED, That the Internal BE IT FURTHER RESOLVED, That at the We urge that at the very least, the $7,500 limit on deductible contributions by self-employed persons should be indexed to cost-of-living increases. Under ERISA, the annual limitation on contributions to a defined contribution plan has risen by $5,050 because of increases in the cost of living. This increase is almost as much as the total limit on contributions by self-employed persons. Beyond this, if the specific contributions and benefit limitations of H. R. 10 are not removed, self-employed persons should alos be permitted to contribute amounts to a defined contribution or defined benefit plan in excess of these levels if necessary under accepted actuarial assumptions to provide a single life annuity at age sixty-five equal to at least fifty percent of their earned income for the five years preceding the year of contribution. (Naturally, such contribution or benefit for the self-employed person could not exceed the respective ERISA limitations on contributions and benefits.) This proposal, while not doing away with all aspects of discrimination, would at least permit self-employed persons to provide a retirement benefit for themselves consistent with the low side of an average level of benefits now generally provided by qualified retirement plans throughout the United States. The American Bar Association strongly urges that Congress act accordingly at the earliest possible opportunity. This is in response to your invitation (dated May 3, 1978) to submit comments for inclusion in the record of the ERISA Oversight Hearings being held by the Subcommittee on Labor Standards. There is enclosed a statement on behalf of the American Council of Life Insurance and the Health Insurance Association of America which suggests legislative amendments to (1) relieve the burdens on small plans, and (2) remove adverse effects of the preemption clause on insured welfare benefit plans. We appreciate the opportunity to submit these suggestions and would be happy to attempt to furnish any additional information which you might think helpful. Sincerely, WTG/jsg معاصر اسمع الله William T. Gibb |