Seyfarth Synopsis: The IRS has issued further guidance on Trump Accounts addressing employer contributions and eligible investments in which Trump Account funds may be invested.
We discuss the new guidance in our Legal Update here. As discussed in our prior blog posts, including “Trump Accounts: The New Kid on the IRA Block” and “No ERISA Strings Attached: The DOL Weighs In on Employer and Employee Contributions to Trump Accounts”, regulators have been slowly rolling out guidance since the announcement of Trump Accounts.
Link to Implementing a Trump Account Contribution Program Implementing a Trump Account Contribution Program
Under the Proposed Rules, employers seeking to contribute to a Trump Accounts contribution program (a “Program”) must satisfy the following requirements:
- Plan Document Requirement. A Program must be established under a separate written plan document.
- Tax-Advantaged Contributions and Limitations. Contributions to a Program are permitted up to a maximum dollar limit of $2,500 (subject to inflation adjustments) which applies per employee; not per eligible dependent.
- Eligibility Requirements. Contributions are permitted only until the beneficiary turns 18. One of the more employer-friendly aspects of the proposal permits employers to rely on employee certifications, rather than requiring employers to independently verify every dependent’s age and dependent status.
- Nondiscrimination Rules. Certain rules will apply to contributions to a Program that prohibit discrimination in favor of highly compensated employees (“HCEs”). The nondiscrimination rules track the nondiscrimination rules that apply to dependent care flexible spending accounts.
- Trustees. Employers must still verify that the contributions are going to an actual Trump Account, and unlike employer contributions to a Health Savings Account, employers cannot limit contributions under their Program to Trump Accounts held by a particular trustee.
- Notices and Reporting. The Proposed Rules reference notices to employees, annual statements, and reporting obligations involving account trustees.
Link to Investment Rules Investment Rules
Investments in Trump Accounts will be selected by the trustees holding the individual Trump Account funds, not their employers. Treasury previously announced that all contributions to Trump Accounts would be defaulted to the State Street SPDR Portfolio S&P 500 ETF (SPYM). The Proposed Rules elaborated on permissible investments and specified that Trump Account funds may not be invested in index funds that correspond to environmental, social, and governance (ESG) indices.
Link to Potential Challenges Potential Challenges
Although the Proposed Rules address some of the key questions relating to Trump Account administration, a number of potential challenges remain. Please see our Legal Update here for more details. We will continue to monitor developments as Treasury and the IRS work toward final regulations and additional operational guidance.