Employers now have a clearer path to offering Trump Accounts as a workplace benefit, months after the new children’s savings accounts were introduced.
The U.S. Treasury Department and IRS released proposed regulations on August 11 explaining how employers can contribute to Trump Accounts and allow employees to make pretax payroll contributions for eligible dependents, according to Human Resources Director.
The guidance gives companies their first substantial set of operational rules, although some questions remain unresolved.
Employers Can Contribute, Employees Can Use Payroll Deductions
The proposed rules create two main ways money can flow into a child’s Trump Account. Employers can contribute up to $2,500 per employee’s dependent on a tax-free basis. Employees can also direct pretax money from their paychecks into an eligible dependent’s account.
The regulations allow employers to use existing cafeteria-plan structures for payroll contributions, which could make implementation easier for companies already using those systems.
Employers also receive a safe harbor for the $1,000 federal pilot contribution. Companies providing that same amount to every employee with an eligible child would not have to apply certain nondiscrimination testing to that contribution.
Payroll Could Be The Hard Part
Creating the benefit will still require work.
Employers need a written plan explaining eligibility and contribution rules and will have to coordinate with payroll providers. Employees can change their Trump Account elections during the year, creating additional administrative requirements.
Another complication is that employees can move their accounts between approved financial institutions. That could require payroll systems to send contributions to different providers rather than one designated destination.
The proposed rules also raise questions around nondiscrimination testing and eligibility that Treasury may need to clarify before the regulations are finalized.
Employers May Not Rush To Add The Benefit
The new guidance does not mean every employer will immediately add Trump Accounts to its benefits package. Companies will need to determine whether employees actually want the benefit and whether the administrative costs make sense compared with other financial benefits, such as 401(k) plans, HSAs or 529 accounts.
For employers that do participate, the accounts could provide another way to help employees save for their children’s futures. But the benefit could also have a participation problem.
Because parents have to take action to receive the federal seed money, employees who are less familiar with investing or workplace benefits could be less likely to claim it.
That makes employee education an important part of any employer strategy. Companies may be able to help workers access the $1,000 federal contribution even if they choose not to establish their own contribution program.
The regulations are still proposed, with further comments and an October hearing ahead. For employers, the rules provide the first real framework for offering Trump Accounts, but the final requirements could still change.
