In a presentation at McDermott’s Employment and Employee Benefits Forum, Jeffrey Holdvogt discussed qualified plans, including student loan repayment benefits and the rise of DOL/IRS/PBGC plan activity. He also commented on the scrutiny on plan governance and fiduciary process materials. He addressed the legal challenges and mandates, such as state laws protecting against balance billing by out-of-network providers.
Emerging Trends Alert | Filling in the Gaps: Pay Equity
In a presentation at McDermott’s Employment and Employee Benefits Forum, our lawyers discuss the patchwork of state and local laws surrounding pay equity for similarly situated employees doing the same job. Particularly in California, new developments have emerged further clarifying pay equity laws. For best practices, they recommend:
- Establishing compensation ranges across substantially similar jobs
- Taking into account job-related factors when establishing and evaluating employee compensation
- Conducting pay equity analysis under privilege
- Performing a thoughtful time analysis and remedial action
Bipartisan Legislation Proposed to Promote Student Loan Repayment Retirement Benefits
In late December, US Senator Ron Wyden introduced the Retirement Parity for Student Loans Act (Student Loan Act), which would allow employers to make matching contributions under 401(k), 403(b) and SIMPLE plans with respect to student loan repayments made by employees. If enacted, this legislation would provide powerful new guidance for employers looking to offer student-loan-repayment-related benefits to their employees.
Last year, the Internal Revenue Service (IRS) released a groundbreaking private letter ruling (PLR) that helped to clear the way for employers to begin providing student loan repayment benefits as part of their 401(k) plans. More specifically, the PLR confirmed that, under certain circumstances, employers might be able to link the amount of employer contributions made on an employee’s behalf under a 401(k) plan to the amount of student loan repayments made by the employee outside the plan. However, the PLR only applied to the plan sponsor requesting the ruling and only addressed the specific issue and facts presented by the plan sponsor. As a result, although the PLR provided helpful guidance to employers, it also left many questions unanswered.
In response, many employers and industry groups have pushed for legislation that provides comprehensive guidance on how employers can and should structure student loan repayment benefits under their retirement plans. The Student Loan Act would address a number of the questions raised in response to the PLR and would provide employers more flexibility to offer student loan repayment benefits under their plans. In particular, the Student Loan Act would open the door for student loan repayments to be treated as elective deferrals under an employer’s plan and to qualify for corresponding matching contributions (rather than the special non-elective contributions described in the PLR). In addition, the Student Loan Act would clarify nondiscrimination testing requirements for student loan repayment benefits and address how student loan repayment benefits may be provided under not only traditional 401(k) plans, but also under safe harbor 401(k) plans, 403(b) plans and SIMPLE plans.
The Student Loan Act is part of the broader Retirement Security & Savings Act, which has bipartisan backing. The prospects for enactment of the Student Loan Act and Retirement Security & Savings Act are uncertain. Nevertheless, the release of the Student Loan Act, and its inclusion as part of the Retirement Security & Savings Act, shows that legislators are responding to employer demand and industry group efforts to seek further clarification on how they can provide employees with student loan repayment benefits under their tax-qualified retirement plans.
IRS Announces 2019 Employee Benefit Plan Limits
Recently the Internal Revenue Service (IRS) and the Social Security Administration announced the cost-of-living adjustments to the applicable dollar limits on various employer-sponsored retirement and welfare plans and the Social Security wage base for 2019. The table below compares the applicable dollar limits for certain employee benefit programs and the Social Security wage base for 2018 and 2019.*
UPDATE: On Thursday, November 11, 2018, the Internal Revenue Service announced that, for calendar year 2019, the annual maximum salary reduction limit for contributions to a health flexible spending account was increased by $50 to $2,700.
| RETIREMENT PLAN LIMITS | 2018 | 2019 |
| Annual compensation limit | $275,000 | $280,000 |
| 401(k), 403(b) & 457(b) before-tax contributions | $18,500 | $19,000 |
| Catch-up contributions (if age 50 or older) | $6,000 | $6,000 |
| Highly compensated employee threshold | $120,000 | $125,000 |
| Key employee officer compensation threshold | $175,000 | $180,000 |
| Defined benefit plan annual benefit and accrual limit | $220,000 | $225,000 |
| Defined contribution plan annual contribution limit | $55,000 | $56,000 |
| Employee stock ownership plan (ESOP) limit for determining the lengthening of the general five-year distribution period | $220,000 | $225,000 |
| ESOP limit for determining the maximum account balance subject to the general five-year distribution period | $1,105,000 | $1,130,000 |
| HEALTH AND WELFARE PLAN LIMITS | ||
| Health Flexible Spending Accounts | ||
| Maximum salary reduction limit | $2,650 | $2,700 |
| High Deductible Health Plans (HDHP) and Health Savings Accounts (HSA) | ||
| HDHP – Maximum annual out-of-pocket limit (excluding premiums): | ||
| Self-only coverage | $6,650 | $6,750 |
| Family coverage | $13,300 | $13,500 |
| HDHP – Minimum annual deductible: | ||
| Self-only coverage | $1,350 | $1,350 |
| Family coverage | $2,700 | $2,700 |
| HSA – Annual contribution limit: | ||
| Self-only coverage | $3,450 | $3,500 |
| Family coverage | $6,900 | $7,000 |
| Catch-up contributions (age 55 or older) | $1,000 | $1,000 |
| SOCIAL SECURITY WAGE BASE | ||
| Social Security Maximum Taxable Earnings (dollars) | $128,400 | $132,900 |
Plan sponsors should update payroll and plan administration systems for the 2019 cost-of-living adjustments and should incorporate the new limits in relevant participant communications, like open enrollment materials and summary plan descriptions.
For further information about applying the new employee benefit plan limits for 2019, contact your regular McDermott lawyer.
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*The dollar limits are generally applied on a calendar year basis; however, certain dollar limits are applied on a plan-year, tax-year, or limitation-year basis.
Groundbreaking IRS Ruling Helps Clear the Way for New 401(k) Plan Student Loan Benefits
On Friday, the IRS released a private letter ruling (PLR) which will help clear the way for employers to provide a new type of student loan repayment benefit as part of their 401(k) plans. By issuing the PLR, the IRS gave its blessing to an employer-provided student loan repayment benefit offered through an employer’s 401(k) plan. Historically, many plan sponsors had questioned whether such an approach would be permissible under IRS rules. As a result, the PLR provides welcome confirmation that such an arrangement is permissible under certain circumstances.
Generally speaking, the PLR confirmed that, under certain circumstances, employers may be able to link the amount of employer contributions made on an employee’s behalf under a 401(k) plan to the amount of student loan repayments made by the employee outside the plan. More specifically, as explained in our On the Subject published on Friday, the IRS concluded that an employer could make a non-elective contribution to its 401(k) plan where the amount of the non-elective contribution would be based on an employee’s total student loan repayments and would be contributed to the plan in lieu of the matching contributions that would otherwise be made to the plan had the employee made pre-tax, Roth 401(k) or after-tax contributions.
Because student loan benefit programs are becoming an increasingly powerful way for employers to attract and retain key talent, particularly employers with a young and educated workforce, the PLR will very likely cause many employers to consider offering a student loan benefit as part of their retirement program. Importantly, employers who wish to do so should take care to review their 401(k) plans for special rules, features or design elements (outside those discussed in the PLR) that might create additional hurdles to linking the amount of employer contributions made on an employee’s behalf under a 401(k) plan to the amount of student loan repayments made by the employee outside the plan. For example, some of the special rules that apply to safe harbor plans could limit an employer’s ability to create a similar student loan benefit structure.
For more information about this groundbreaking ruling, including the key features of the student loan benefit program described in the PLR, the advantages of such programs and other important considerations, please see our On the Subject published on Friday.
IRS Issues “Snapshot” Guidance on Qualified Retirement Plan Issues
The Internal Revenue Service (IRS) recently released “Issue Snapshots” on a number of topics related to tax-qualified retirement plans, including both pension and savings plans. Historically, the snapshots have explained new(er) laws and guidance, and have often included audit tips for IRS examiners. As a result, although the IRS has indicated that the snapshots are not official pronouncements of law or directives, the snapshots provide helpful insight into issues that the IRS thinks merit further discussion or clarification. Therefore, the snapshots can be instructive for plan sponsors and plan administrators.
Continue Reading IRS Issues “Snapshot” Guidance on Qualified Retirement Plan Issues
Tax Reform Results in Only Minor Changes for Retirement Plans
The Tax Cuts and Jobs Act made significant changes to the tax code and will have a significant impact on businesses and individual taxpayers. However, although initial proposals included potentially significant changes to employer-sponsored retirement plans, the impact of the final bill on employer sponsored retirement plans will be relatively minor.
Update: IRS Announces Employee Benefit Plan Limits for 2018
On Monday, November 27, 2017, the Social Security Administration announced (announcement here) that the it is lowering the maximum amount of earnings subject to the Social Security tax for 2018 to $128,400. The Social Security Administration had previously announced the amount as $128,700. The revision is the result of updated wage data reported to Social Security. Our On The Subject article has been updated to reflect the lower amount.
Treasury Issues New Guidelines on Searching for Missing Retirement Plan Participants
The US Department of the Treasury recently issued guidance that retirement plan sponsors should consider as part of their obligation to take reasonable steps to locate missing participants. Specifically, the Treasury issued a memorandum which sets forth guidelines that prohibit auditors from challenging qualified plans as failing to satisfy the required minimum distribution standards under Internal Revenue Code (IRC) Section 401(a)(9) if the plan has fulfilled all of the following with respect to participants that cannot be located:
- Searched for alternative contact information in plan, plan sponsor and publicly available records for directories;
- Used a commercial locator service, credit reporting agency or a proprietary internet search tool for locating individuals; and
- Sent mail via United States Postal Service (USPS) certified mail to the last known mailing address and attempted contact “through appropriate means for any address or contact information,” which includes email addresses and telephone number.
The Treasury guidance is similar to, but also expands upon, prior guidance provided by the US Department of Labor, which addresses locating missing participants for terminated retirement plans.
Locating missing participants and beneficiaries can be challenging for plan sponsors. Many plan sponsors find that they are unable to locate participants who left employment many years prior and, as a result, are unable to make required minimum distributions. Both the IRS and Department of Labor have stepped up their enforcement of these requirements in recent years. In particular, the Department of Labor has made locating missing participants an enforcement priority for plan audits.
IRS Issues Updated Mortality Tables for 2018 – Impact on Pension Plan Sponsors
The IRS recently issued new mortality tables for 2018, which will likely increase pension funding liabilities for many plan sponsors. Plan sponsors should consider options to delay the use of the new mortality tables for funding purposes, while large plan sponsors should consider the option to utilize plan-specific mortality tables instead.