Trump Accounts Prompt Caution Over Employer Matches for Workers

Employers that plan to join Bank of America Corp., Intel Corp., and other major companies in making Trump Account contributions must weigh potential benefits with continued regulatory uncertainty that can carry legal risk.

Companies including JPMorgan Chase & Co. announced this week they would match the $1,000 contribution from the federal government toward the accounts for eligible employees, joining big firms like Wells Fargo & Co., BlackRock Inc., and Chime Financial Inc.

While the White House has been eager to tout commitments from those larger companies, employers still must contend with regulatory questions around how the accounts will interact with key aspects of the tax code and the Employee Retirement Income Security Act.

“There’s a lot of interaction with other law that’s just kind of left unsaid at the moment, and it’s just sort of a waiting game,” said Sam Rosin, an attorney in Reinhart’s employee benefits practice. “Employers can jump ahead and set up these programs, but there’s something to be said for caution here, if you are sensitive to the possible administrative burden of having to make plan amendments.”

Trump Accounts were established in the GOP tax-and-spending bill signed into law last July. The federal government will contribute $1,000 in seed funding for children born in 2025 through 2028.

The accounts will be invested in low-cost index funds and can be accessed without penalty once the child turns 18, when it becomes akin to an individual retirement account.

Employers can opt to establish a Trump Account Contribution Plan (TACP) for employees and begin contributing to the accounts on July 4. Contributions are capped at $2,500 per year in pre-tax benefits for each employee with future limits indexed to inflation starting in 2027.

Guidance Forthcoming

The IRS is expected to publish additional guidance later in the year following an initial document issued in December, and some employers may opt to wait before participating in the program.

Dominic DeMatties, a partner at Thompson Hine LLP, said Treasury may put its full guidance out before July 4, meaning companies will have more clarity before they can even begin making contributions.

Treasury is expected to address a few major areas, including how employers can establish Trump Accounts in connection with a Section 125 cafeteria plan, DeMatties said.

Getting clearer rules around the use of those plans for TACPs may appeal to employers, as these arrangements allow them to offer certain benefits using pre-tax dollars, and can result in reduced payroll taxes.

The department is also expected to publish non-discrimination rules intended to ensure that contributions toward Trump Accounts are spread evenly across an employee base, and not skewed in favor of highly compensated or non-highly compensated workers, he said.

Treasury signaled in its initial guidance it is likely, along with the Department of Labor, to clarify how the accounts can be structured to avoid making them subject to ERISA. DeMatties likened it to previous guidance for payroll deductions for IRAs and health savings accounts.

“What you’re trying to avoid, and what the administration has made clear they want to avoid, is the possibility of ERISA litigation that may not make a lot of sense,” he said.

Comparing Options

Rosin said employers will have to ask whether the Trump Accounts are “the right program” to be contributing to, weighing tax incentives and attractiveness to employees. There is already another way for employers to contribute to funds for employees’ children in the form of 529 plans.

All contributions companies make toward Trump Accounts are considered tax deductible. Employers can qualify for certain state tax credits or deductions if they contribute to a traditional 529 plan, which is used for future education costs.

The Trump Accounts have a wider range of uses besides tuition, including first-time home purchases or starting a business. But they have narrower investment options than a 529, which might be less appealing to workers. Individuals’ annual contributions to Trump Accounts are also capped at $5,000 each year, while 529 plans have a $19,000 contribution limit before they count against the lifetime gift tax exemption.

In addition to major companies, Trump Accounts have gotten a boost from private donors. Michael and Susan Dell announced in December they would provide $6.25 billion to seed the accounts of older children. Altimeter Capital CEO Brad Gerstner said Wednesday he would give $250 to the accounts of all eligible children in Indiana.

Elaine Maag, a senior fellow in the Urban-Brookings Tax Policy Center at the Urban Institute, said employers may view the accounts similarly to an IRA for employees and deduct contributions as a cost of business.

Maag said because employer contributions are capped at $2,500 annually for each worker, it is still accessible for small businesses. She said smaller companies tend to have a workforce with more turnover than at larger companies, which may play a role in whether they decide to use TACPs.

Because of the lack of current guidance and the need for individuals to opt into the program to make it work, Maag said employers may ultimately take a wait-and-see approach.

“As the policy becomes more certain, as we know if people actually take up the account, as we sort of understand what the balances in these accounts are, companies may become more comfortable if it turns out they’re very popular, or they may become less comfortable if they become not very popular,” Maag said.