Trump Accounts Rules Issued but Operational Challenges Remain

Employers considering contributions to Trump Accounts held by their employees’ children have substantially more clarity about how the new benefit will work after recent guidance from the Department of the Treasury, but benefits advisers say the biggest unanswered questions are now the mechanics of delivering money to the accounts.

On August 11, Treasury outlined rules allowing employers to contribute as much as $2,500 annually tax-free to Trump Accounts for employees’ dependents and permitting workers to make pre-tax contributions through cafeteria plans. More than 50 companies have already committed to contributions, according to Treasury.

Interviews with benefits consultants who work with employers suggest the guidance marks an important transition for the program. Companies now have enough information to begin deciding how Trump Accounts fit into their benefits strategies, they said. But questions about account verification, payroll systems, trustees and the movement of money could determine how quickly employers beyond the early adopters embrace the accounts.

“I think it clarified several things that employers had been waiting on,” says Melissa Elbert, a wealth solutions partner in Aon.

Among the most significant clarifications, Elbert says, is that employers generally will not be responsible for monitoring annual contribution limits or recovering contributions that exceed those limits. The guidance also addressed nondiscrimination testing, another issue that had raised concerns about the potential administrative burden.

The guidance also gave employees more flexibility. Employers can amend cafeteria plans to allow workers to direct pre-tax salary reductions into their dependents’ Trump Accounts, with employees able to change elections at least monthly, Elbert says.

But resolving those compliance questions has exposed the next layer of implementation challenges.

Employer Logistics

Employers cannot require workers to use a preferred Trump Account trustee, meaning a company could ultimately have to send contributions to accounts held across multiple providers. Elbert says employers are now asking how money will actually move, how they will verify that an account is a legitimate Trump Account, and whether payroll and benefits systems will need to be modified.

Greg Long, vice president of customer success for wealth solutions at Alight Solutions, says that requirement initially made the program appear potentially cumbersome. If employees can hold accounts with different trustees while employers must verify those accounts, companies could face numerous connections with financial institutions.

Long says, however, that subsequent discussions involving Treasury have pointed toward a centralized verification-and-remittance mechanism that could allow employers to send account information and contributions through a single channel—an approach he says would alleviate a major administrative concern.

That distinction could matter for adoption. Long says his clients currently fall into two camps: roughly a dozen large employers that have already decided to participate and want to begin matching the government contribution quickly, and another group that is still learning about the accounts and moving more cautiously.

For those still deciding, Elbert says Treasury has provided enough clarity to begin evaluating Trump Accounts as part of a broader benefits strategy. The remaining operational guidance will help employers determine the actual cost and difficulty of administering the program.

Treasury is simultaneously filling in the investment side of the program. On Thursday, it proposed limiting eligible investments to low-cost options tracking broad segments of U.S. or global equity markets. Treasury has already selected State Street’s SPDR Portfolio S&P 500 ETF as the default and identified four other low-cost index exchange-traded funds parents could choose.

Still, industry participants say successful implementation will require more than contribution and investment rules.

SIFMA Foundation President Melanie Mortimer says easier account setup and transfers could encourage adoption. She also said automatic enrollment would be a useful next step, although it may require a statutory change. Mortimer stressed that families will need education to understand investing, diversification and long-term risk.

Elbert similarly said employers can begin playing that educational role even before the remaining infrastructure is complete.

“They can do that now,” she says. “While we wait on some of the infrastructure to be established on the operational side of actually facilitating or providing the benefit, education will be key.”