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IRS Announces 2023 Employee Benefit Plan Limits

by Jeffrey Holdvogt and Jacob Mattinson | Oct 21, 2022 | Employee Benefits, Employment, Fiduciary and Investment Issues, Retirement Plans

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 2023. The table below compares the applicable dollar limits for certain employee benefit programs and the Social Security wage base for 2022 and 2023.*

RETIREMENT PLAN LIMITS (guidance link) 2022 Δ 2023 Annual compensation limit $305,000 ↑ $330,000 401(k), 403(b) & 457(b) before-tax contributions $20,500 ↑ $22,500 Catch-up contributions (if age 50 or older) $6,500 ↑ $7,500 Highly compensated employee threshold $135,000 ↑ $150,000 Key employee officer compensation threshold $200,000 ↑ $215,000 Defined benefit plan annual benefit and accrual limit $245,000 ↑ $265,000 Defined contribution plan annual contribution limit $61,000 ↑ $66,000 Employee stock ownership plan (ESOP) limit for determining the lengthening of the general five-year distribution period $245,000 ↑ $265,000 ESOP limit for determining the maximum account balance subject to the general five-year distribution period $1,230,000 ↑ $1,330,000 HEALTH AND WELFARE PLAN LIMITS (guidance links here and here) 2022 Δ 2023 Health Flexible Spending Accounts Maximum salary reduction limit $2,850 ↑ $3,050 Health FSA Carryover Limit $570 ↑ $610 Dependent Care Flexible Spending Accounts± If employee is married and filing a joint return or if the employee is a single parent $5,000 = $5,000 In employee is married but filing separately $2,500 = $2,500 Excepted Benefit Health Reimbursement Arrangements (EBHRAs) $1,800 ↑ $1,950± Qualified Transportation Fringe Benefit and Qualified Parking (monthly limit) $280 ↑ $300 High Deductible Health Plans (HDHP) and Health Savings Accounts (HSA) HDHP – Maximum annual out-of-pocket limit (excluding premiums): Self-only coverage $7,050 ↑ $7,500 Family coverage $14,100 ↑ $15,000 HDHP – Minimum annual deductible: Self-only coverage $1,400 ↑ $1,500 Family coverage $2,800 ↑ $3,000 HSA – Annual contribution limit: Self-only coverage $3,650 ↑ $3,850 Family coverage $7,300 ↑ $7,750 Catch-up contributions (age 55 or older)± $1,000 ═ $1,000 SOCIAL SECURITY WAGE BASE (guidance link) 2022 Δ 2023 Social Security Maximum Taxable Earnings $147,000 ↑ $160,200

Plan sponsors should update payroll and plan administration systems for the 2023 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 2023, contact your regular McDermott lawyer.

* 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.

± Not indexed for cost-of-living adjustments, with the exception of limited guidance issued for certain years.

The 411 on Employment Background Checks in Stock and Asset Transactions

by Marjorie C. Soto Garcia and Michelle S. Strowhiro | Oct 13, 2022 | Employment, Fiduciary and Investment Issues

Employment background checks help employers hire individuals with integrity whom they can trust, and who do not present a risk to the business, other employees, or the customers and clients that the business serves. Buyers in transactions may view target businesses that run background checks as lower risk for employee performance and retention issues. Background checks also constitute an important area for employment diligence in transactions because an employer or background check vendor’s failure to follow the hypertechnical disclosure and authorization requirements of the Fair Credit Reporting Act (FCRA) and other applicable state and local laws risks potentially material class action exposure and $1,000 penalties per violation. This article explores mitigation strategies that buyers may use in due diligence to identify and valuate potential FCRA exposure.

Read more here.

Save It for a Rainy Day Part 2: IRS Announces Additional Plan Amendment Extensions

by Teal Trujillo, Patrick Ryan and Diane Morgenthaler | Oct 12, 2022 | Employee Benefits, Employment, Executive Compensation, Retirement Plans

On September 26, 2022, the Internal Revenue Service (IRS) extended the amendment deadline for non-governmental qualified retirement plans, plans covered under Section 403(b) of the Internal Revenue Code (Code) and individual retirement accounts (IRAs). The extensions included many of the amendment deadlines under the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), the Bipartisan American Miners Act of 2019 (Miners Act), and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). See our prior On the Subject about this earlier extension. Missing from this earlier IRS extension was a postponement of deadlines relating to certain CARES Act provisions, in particular those related to COVID-related distributions and loan relief, as well as deadlines relating to disaster-related loans or distributions under the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Disaster Act).

NEW IRS EXTENSION

IRS Notice 2022-45 provides a new extension to December 31, 2025, of the special amendment deadlines included in Section 302 of the Disaster Act and in Section 2022 of the CARES Act.

Section 2022 of the CARES Act provided for COVID-related distributions, increased loan amounts and delayed loan repayments.
Section 302 of the Disaster Act provided favorable tax treatment for certain disaster-related loans or distributions.

Previously, amendments for these CARES Act and Disaster Act provisions would have been required by the end of the 2022 plan year. The Notice also clarifies that CARES Act and Disaster Act amendments adopted before the new December 31, 2025, deadline will not cause the plan to fail to satisfy the anti-cutback requirements of Code Section 411(d)(6) or of Section 204(g) of the Employee Retirement Income Security Act of 1974 (ERISA).

The extension applies to individual retirement accounts (IRAs), to qualified plans that are not governmental plans and to Code Section 403(b) plans that are not maintained by a public school. The amendment deadlines for Code Section 403(b) plans maintained by a public school, and for governmental plans (including plans covered by Code Section 457(b)), remain slightly different.

ACTION ITEM

Most tax-qualified retirement plans and Code Section 403(b) plans that elected to offer COVID-related distributions and loan relief can now wait to adopt changes required under the CARES Act, SECURE Act, MINERS Act or Disaster Act in a single amendment no later than December 31, 2025.

Cartel Corner | August 2022 (Labor Markets)

by McDermott Will & Emery | Oct 6, 2022 | Employment, Labor

The DOJ continues its efforts to create a novel area of potential criminal liability for labor market investigations. Historically, government enforcement of alleged anticompetitive labor market practices occurred in the civil context, resulting in fines for companies and individuals found to have participated in inappropriate practices. In late 2016, the DOJ began its campaign to expand Section 1 of the Sherman Act to include naked wage-fixing and no-poach agreements. Since then, labor market criminal investigations—now under their third administration—have become a programmatic and core DOJ investigative priority. This policy shift has resulted in many investigations and more than a dozen criminal cases filed against individuals and corporations to date.

The DOJ’s first two prosecutions for alleged labor market crimes went to trial in spring 2022. The DOJ’s attempts to jam a square peg into a round hole of a per se antitrust law violation resulted in full acquittals on the charged Sherman Act conduct in both instances. Despite the lack of precedent supporting the prosecution of certain labor market practices as per se criminal violations, the DOJ in both instances asserted that the mere existence of any naked wage-fixing or no-poach agreement would constitute a crime. In United States v. Jindal, the first-ever wage-fixing case, the DOJ alleged that the defendants entered into a conspiracy to suppress competition by agreeing to fix prices to lower the pay rates of certain employees. On April 14, 2022, a Texas jury found both defendants not guilty of all Sherman Act charges but convicted one defendant of obstructing a Federal Trade Commission (FTC) investigation.

In United States v. DaVita, Inc. and Kent Thiry (McDermott represented Mr. Thiry in the investigation and trial), the DOJ indicted the defendants on three counts of criminal conspiracy to allocate the market for employees by allegedly entering into non-solicitation agreements with three other companies. This was a landmark case of first impression—the first criminal trial of its kind for liability under the Sherman Act for so-called non-solicit agreements. The court did not agree with the DOJ that a typical per se approach was appropriate. First, the judge held that not every non-solicitation, or even every no-hire, agreement would allocate the market and be subject to per se treatment. The court also required the DOJ to prove that the defendants acted with the specific intent to constrain the labor markets. Given the draconian nature of the per se standard, the court held that the DOJ would “not merely need to show that the defendants entered the non-solicitation agreement and what the terms of the agreement were. It will have to prove beyond a reasonable doubt that the defendants entered into an agreement with the purpose of allocating the market” and that the defendants “intended to allocate the market as charged in the indictment.”

There were two important jury instructions in the same matter. In one, the court instructed that the jury “may not find that a conspiracy to allocate the market for the employees existed unless you find that the alleged agreements and understandings sought to end meaningful competition for the services of [...]

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Colorado Continues to Whittle Away at Non-Compete Agreements

by Michelle S. Strowhiro, Cristell Fortune and Brian Mead | Sep 27, 2022 | Employment, Labor

Effective August 10, 2022, Colorado’s laws governing restrictive covenants were amended to provide additional limitations and hurdles for employers who seek non-compete and non-solicit agreements with their employees, including compensation thresholds and notice requirements. The new law also sets forth steep penalties for any violations. This article provides the details of these new restrictions.

Read more here.

HR Might Be on the Front Line in the Battle Against Monkeypox Misinformation

by Michelle S. Strowhiro | Sep 20, 2022 | Employee Benefits, Employment, Health and Welfare Plans

More employers are beginning to take notice of Monkeypox and how it might impact their workplaces. In this HR Brew article, McDermott Partner Michelle Strowhiro said employers need to present information from a factual basis to dispel rumors that might circulate in the workforce.

“To the extent that employees are…creating a hostile environment, it’s incumbent on employers to take proactive action to stop that,” Strowhiro said.

Access the article.

What You Should Be Telling Workers About Monkeypox

by Michelle S. Strowhiro | Sep 7, 2022 | Employee Benefits, Employment, Health and Welfare Plans

What should employers be telling workers about monkeypox? In this Fortune article, McDermott Partner Michelle Strowhiro said the first thing is to make sure workers properly understand the signs and symptoms of the viral disease.

“Now’s the time to evolve [your] COVID-19 policy into a greater safety policy that includes monkeypox, and covers the symptoms of monkeypox and protocols of what to do if you have symptoms or test positive,” Strowhiro said.

Access the article.

How Does the FMLA Apply to a Remote Workforce?

by Brian Mead and Dawn Peacock | Sep 6, 2022 | Employee Benefits, Employment, Labor

The Family and Medical Leave Act (FMLA) was enacted in 1993, a year when the idea of working a corporate job from a living room was rare. When the law was passed, the FMLA didn’t contemplate a remote workforce. Now, and especially post-pandemic, many companies are embracing a fully remote workforce (e.g., sales representatives, healthcare medical device technicians and software engineers). While employees’ needs for a leave of absence have always been around, remote employment and its effects on the applicability of the FMLA requirements has not. For well over two years, many employees have been working from home. Some report to a manager at the headquarters or worksite. Plenty of remote employees, however, report to an individual who also works remotely. The new remote landscape is making what used to be an easy application of FMLA eligibility into a difficult analysis. This article examines the FMLA regulatory framework for remote employees, a recent Texas federal court decision on the issue and the practical options that employers have moving forward.

Read more here.

State Law Privacy Video Series | Employee Exemptions

by Fran P. Forte | Aug 30, 2022 | Employee Benefits, Employment, Privacy and Data Security

California, Virginia and Colorado have new privacy laws coming into effect in 2023. But now is the time to start preparing your business or organization for compliance. Throughout the State Law Privacy video series, we examine the different aspects of these laws and provide you the knowledge and tools you need for proper compliance.

In the next video of the series, Associate Fran Forte explores one of the notable exemptions under California’s law as it relates to employee data and how employee data is handled under Virginia and Colorado’s privacy laws.

Watch here.

Monkeypox in the Workplace: Key Considerations for Employers

by Michelle S. Strowhiro and Lindsay Ditlow | Aug 4, 2022 | Employee Benefits, Employment, Health and Welfare Plans, Labor

As of July 26, 2022, there are 3,591 confirmed cases of monkeypox in the United States, according to US Centers for Disease Control and Prevention (CDC) data, and the World Health Organization (WHO) Director-General has declared the multi-country monkeypox outbreak a Public Health Emergency of International Concern (PHEIC). With much about the potential impact and scope of monkeypox still unknown, employers should consider taking proactive steps now, as may be appropriate for their workforce, to enhance and reinforce the safety protocols already in place from the COVID-19 pandemic.

Read more here.

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