Preparing for Trump Accounts: What Treasury's proposed rules mean for employers

When Congress created Trump Accounts, employers immediately began asking practical questions:

• How will employer contributions be administered?
• How will employee eligibility be verified?
• Can employers limit administration to a single trustee?
• How will payroll systems support employee contributions?
• What compliance responsibilities will fall on employers versus service providers?

Treasury's newly issued proposed regulations provide the first detailed framework for employer-sponsored Trump Account contribution programs. While many aspects of the proposal offer welcome clarity, the regulations also reveal the significant operational infrastructure that may be required to administer these programs effectively. 

For benefits leaders, the message is becoming clear: implementing Trump Accounts may ultimately be less about contribution strategy and more about administration strategy.

What’s included in the proposed Trump Account regulations?

The proposed regulations establish comprehensive rules governing employer contributions to Trump Accounts under Internal Revenue Code Section 128. Among other provisions, the proposal would:

• Require employers to maintain a separate written Trump Account contribution program
• Establish employee certification and eligibility requirements
• Require employers to verify that contributions are being made to valid Trump Accounts
• Permit pre-tax contributions through cafeteria plans to a dependent's Trump Account
• Impose nondiscrimination testing requirements like those used for dependent care assistance programs
• Require new employer W-2 reporting and trustee notification processes

While these provisions create a workable framework, they also raise important questions regarding technology, payroll integration, account validation, compliance monitoring and ongoing administration. Further, there are critical questions around the operational process of money movement that this guidance does not attempt to answer. Presumably, this will be covered in future guidance. 

Key Trump Account administrative challenges for employers

1. The "any trustee" requirement could create a new administrative model

Perhaps the most consequential provision for plan administrators is Treasury's proposal to prohibit employers from limiting contributions to Trump Accounts maintained by specific trustees. Employers would be expected to support contributions to any valid Trump Account regardless of where it is held. This differs from existing benefits where employers can streamline administration through a limited network of vendors and recordkeepers.

2. Account verification responsibilities remain significant

The proposed rules permit employers to rely on employee certifications regarding dependent status and beneficiary age. However, the rules explicitly state that employers cannot rely solely on employee certifications to determine whether an account is a valid Trump Account. Treasury acknowledged that secure electronic validation methods with trustees and service providers are still being explored.

Until an industry standard emerges, employers must implement a method to verify account status using information from trustees or service providers and consider:

• Data exchange standards
• Verification workflows
• Eligibility monitoring
• Exception handling

This is precisely the type of challenge that will require coordination across benefits administration, account trustee and payroll platforms.

3. Nondiscrimination testing will become a critical program design consideration

The proposed regulations confirm that employer-sponsored Trump Account programs must satisfy nondiscrimination requirements like those applicable to dependent care spending account plans. These include eligibility testing, contributions and benefits testing and average benefits testing. 

The proposal introduces detailed testing methodologies and provides correction mechanisms when failures occur. In certain cases, contributions provided to highly compensated employees may need to be recharacterized as taxable income if nondiscrimination requirements are not satisfied. 

For employers, this will introduce a level of compliance administration similar to what already exists for retirement and cafeteria plan programs.

4. Cafeteria plan integration creates opportunity and complexity

The proposed regulations confirm that Trump Account contributions may be funded through a Section 125 cafeteria plan when contributions are made to a dependent's Trump Account. Pre-tax contributions to an employee's own Trump Account are not permitted. Furthermore, the proposed regulations indicate elections must be prospective and can be changed by an employee at least monthly. 

This flexibility could drive employee adoption by allowing pre-tax funding. At the same time, it introduces additional integration requirements involving:

• Enrollment platforms
• Payroll systems
• Contribution processing
• Election management
• Ongoing compliance administration

Organizations considering salary reduction contributions should begin evaluating these operational requirements early.

Questions benefits leaders should be asking now

Treasury’s proposed framework for employer Trump Account focuses on the legal issues associated with employer contributions. Beyond legal concerns, there are a multitude of issues that require consideration, including coordination across payroll systems, enrollment platforms, employee communications, compliance testing, account validation, trustee connectivity and ongoing recordkeeping. In many respects, successful Trump Account administration will require capabilities that span both traditional health and wealth administration disciplines. 

Although the rules remain in proposed form, benefits leaders should begin evaluating several key questions:

• How will participant Trump Account information be collected and maintained?
• How will contributions be routed across potentially numerous trustees?
• Who will perform account validation and eligibility verification?
• How will nondiscrimination testing be administered and monitored?
• What payroll, enrollment and communication changes will be required to support pre-tax contributions?
• What processes will be needed to manage contribution corrections and trustee notifications?

The answers to these questions may ultimately determine how quickly organizations can move from interest in Trump Accounts to successful implementation.

Looking ahead - a new savings benefit with broader administrative implications

Treasury's proposal provides important clarity and moves the market one step closer to operationalizing employer-sponsored Trump Account programs. At the same time, the regulations highlight the substantial administrative framework required to make these programs scalable. 

As employers evaluate their strategies, the organizations that are best positioned for success will likely be those that begin planning now, leveraging experienced partners that understand both the compliance requirements and the operational realities of administering complex benefits and savings programs.

At Alight, we see Trump Accounts as more than a new tax-favored savings vehicle. They represent the convergence of payroll, benefits administration, regulatory compliance, participant experience and wealth administration. As the rules evolve, employers will need solutions that bring those capabilities together in a seamless and scalable way. That is where benefit administration expertise may prove just as important as the regulations themselves.