Contribution and Benefit Limits for 2019

IRS releases 2019 limits for deferred compensation arrangements and certain welfare plans.

The IRS was late this year in announcing its limits for certain benefit programs, but the notice has finally arrived. We are still waiting for updates to Flexible Spending Accounts and Transportation fringe benefit limits, but here are some of the other updates relevant for plan administrators:

2019 2018 2017 2016
Individual deferral limit
401(k), 403(b), and 457(b)
$19,000 $18,500 $18,000 $18,000
Age 50 Catch-up deferral limit 401(k) and 403(b) $6,000 $6,000 $6,000 $6,000
Maximum compensation $280,000 $275,000 $270,000 $265,000
Highly compensated employee* $125,000 $120,000 $120,000 $120,000
Key employee $180,000 $175,000 $175,000 $170,000
Defined contribution 415 limit $56,000 $55,000 $54,000 $53,000
Defined benefit 415 limit $225,000 $220,000 $215,000 $210,000
Healthcare flexible spending Not released $2,650 $2,600 $2,550
HSA contribution limits:

Self-only

Family

 

 

$3,500

$7,000

 

$3,450

$6,900

 

$3,400

$6,750

 

$3,350

$6,750

High Deductible Health Plan minimums/out of pocket maximums:

Self-only

Family

 

 

 

 

$1,350/$6,700

$2,700/$13,500

 

 

 

 

$1,350/$6,650

$2,700/$13,300

 

 

 

 

$1,300/$6,550

$2,600/$13,100

 

 

 

$1,300/$6,550

$2,600/$13,100

Transportation fringe benefit limit** Not released $260 $255 $250
Social Security (OASDI) taxable wage base $132,900 $128,400 $127,200 $118,500

Fiscal year plans: Plans that do not operate on a calendar year use a combination of year-end and beginning-of-year limits. For 415 benefit limits, use the limit in effect at the end of your plan year. (However, limits to a participant’s elective deferrals are always based on the calendar year.) When calculating maximum compensation limits, or determining who is a highly compensated employee or a key employee, use the limit in effect at the beginning of your plan year (and see the note below for more information on HCEs).

** Remember that highly compensated employees (“HCEs”) are determined based on their compensation in a “look-back year,” not the current year. For calendar year plans, the previous calendar year is the “look-back year.” This means that in 2019, highly compensated status is based on the 2018 limit of $120,000.  For fiscal year plans, the “look-back year” will either be the previous plan year or, if elected on a consistent basis for all of an employer’s plans, the calendar year ending in the current plan year.

*** This fringe benefit is for transit passes, qualified parking, and transportation in a commuter highway vehicle. The TCJA suspending the reimbursement tax benefit for bicycle commuting costs until December 31, 2025. The Tax Cuts and Jobs Act (“TCJA”) expressly prohibits for-profit employers from deducting the costs of these benefits, and for tax-exempt employers, amounts contributed to these benefits will be subject to the Unrelated Business Income Tax. The TCJA still allows the benefit to be tax-free to employees, up to the IRS limit.

 

You can find these and other deferred compensation limits for 2019 in IRS Notice 2018-83, and in this announcement from the Social Security Administration. To see how these numbers have progressed over time, check out this link.

Employee Benefits News

Updated deferred compensation and benefit limits for 2019

The IRS released the limits for 2019 on November 1, 2018, later than usual. Click here to see the table of benefits.

Relief for plan sponsors after recent hurricanes

The Department of Labor has issued some relief for plans in the wake of hurricanes Florence and Michael. Read the DOL’s press release and get more details here.

401(k) matching for student loan repayments.

In this private letter ruling, the IRS approved an innovative idea: allow employer nonelective 401(k) contributions to participants who do not defer any salary into their 401(k) but who do make student loan repayments. In its request, the company explained that it makes employer contributions of 5% to participants who elect to defer at least 2% of their salary to their 401(k). It proposed to amend its plan to allow the same 5% employer contributions for participants who make student loan repayments of at least 2% – even if those participants do not defer any salary under the 401(k) plan. This could be a great way for employers to help employees address burdensome student loan debt and prepare for retirement at the same time. As always, the devil is in the details, so be sure to talk to your benefits counsel before making a change.

Updated limits for deferred compensation and certain welfare plans.

The IRS has updated some important limits related to employee benefits. Click here to read more and see the table of benefits.

Expanded EMAC payments.

Massachusetts employers face an increased tax and the possibility of additional assessments if their employees sign up for MassHealth or subsidized ConnectorCare coverage. Read our summary here.

Department of Labor further delays implementation of the fiduciary rule.

The DOL has finalized new regulations that significantly delay the full implementation of its new fiduciary rule. The fiduciary rule went into effect on June 9, 2017, and includes a transition period to phase in some of the rule’s effects. Under the new final regulations, this transition period – originally scheduled to end on January 1, 2018 – will instead end 18 months later, on July 1, 2019. The delay affects the Best Interest Contract Exemption (“BIC Exemption”), the Principal Transactions Exemption and certain amendments to the Prohibited Transaction Exemption 84-24. (You can read about the delayed rules here.)

Final disability claims regulations delayed 90 days.

The Department of Labor is putting a 90-day hold on the applicability date of the new claims procedures for ERISA plans, through April 1, 2018.  This delay affects the final regulations that were published on December 19, 2016, which required plans to, among other things, provide claimants an opportunity to review and respond to any new information or rationales before a final decision is made and to expand on the information provided to claimants. The delay means the DOL may be considering revising – or perhaps even revoking – the new regulations.

You can read the announcement here.

ACA tax updates: the IRS is preparing to enforce employer shared-responsibility penalties.

Check out this newly-updated IRS Q&A– questions 55 through 58 – and this form IRS letterBy the end of 2017, the IRS plans to send out letters to employers who may owe 2015 “pay or play” penalties. The letter (what the IRS is labeling “letter 226J”) will indicate the assessment amount the IRS proposes, and will include a list of any employees who qualified for a tax credit on the ACA exchange and who did not receive an offer of “affordable” coverage, month by month. Employers will generally have 30 days to respond. If you receive this letter, get in touch with your benefits counsel immediately! If you do not timely respond to the letter, the IRS will assess the penalty and issue a demand for payment.

Tax Reform proposals: Changes to Deferred Compensation and Executive Compensation Rules

Below is our analysis of the bill in its prior form. Check back soon for updates from the recently-released – and final – conference version.

1.     20% Excise tax on top salaries paid by tax exempt organizations

Any remuneration in excess of $1,000,000 will be taxed to the service provider at 20%.

  • In change of control situations, the current 20% tax on excess parachutes that have not been properly approved remains in effect.
  • There will not be duplicate penalties, i.e. a 20% parachute penalty is not added to the new 20% penalty on large compensation.
2.     Public companies cannot deduct compensation over $1,000,000

The present rule in IRC §162(m) prohibiting this deduction is easily avoided with “performance plans.” That exception will be eliminated. All remuneration will be taken into account.

The rule now covers the “principal financial officer,” the “principal executive officer” and the three highest paid employees other than those two.

  • A lower paid CFO is technically not covered under §162(m).
  • Officer title no longer matters. If you are the CEO or CFO in fact, you are the “principal” officer and covered by the House Bill.

Once a person is “covered” they would remain “covered” by this new rule regardless of job title or function in future years.

3. Minimum age for in-service distributions

Pension plans are currently allowed to provide for in-service distributions once an employee reaches age 62. The House bill lowers that to age 59 1/2, to align with 401(k) rules. The Senate bill does not contain this provision.

Tax Reform proposals: Changes to Fringe Benefit Rules

Below is our analysis of the bill in its prior form. Check back soon for updates from the recently-released – and final – conference version.

These proposals from the Ways and means Committee of the House, if enacted, will impact fringe benefit programs of many employers. This guideline is effective November 7, 2017. We will keep it updated.

At first glance, some of these changes seem heartless, but the counterweights are the larger family credits for middle and lower income families. There will be winners and losers on this. We’ll analyze in more depth later so that employers can give better guidance to employees if these proposals are enacted.

1.     No Dependent Care Plans

Effective January 1, 2018, dependent care plans would no longer be offered.

  • It is not clear what would be done with carry-overs from 2017.
  • This effective date makes 2018 open enrollment (in late 2017) a bit confusing.
    • for 2018 open enrollment, and for carryovers from 2017, we recommend proceeding as you normally would.
    • If this effective date actually sticks, there will most likely be a procedure which provides for penalty-free transition.

The Child Care Credit of IRC §21 ($3,000 per qualifying dependent up to $6,000 maximum) seems to have escaped removal. Based on income, it ranges from 35% to 20% of qualifying expenses.

2.     No employer child care credit

For taxable years starting after January 1, 2018, Employers will no longer receive a tax credit equal to 25 percent of qualified expenditures for employee child care and 10 percent of qualified expenditures for child care resource and referral services. (Credits have been available up to $150,000 in total.)

3.     No education assistance plans

Effective January 1, 2018, employees will no longer qualify for an exclusion (up to $5,250) for employer-paid courses of study.

  • Employers will still be allowed to offer tax-free assistance, without dollar limits, for educational assistance which meets the conditions of the Working Condition Fringe benefit rules of IRC §132(d). No dollar limit applies.
    • Under §132(d), an educational expense is tax free only if it enables the employee to better perform his or her job.
    • Under §132(d), expenses are not tax deductible if they will enable the employee to qualify for a profession.
4.     No exclusion for employer-provided moving expenses

For taxable years starting after January 1, 2018, employer-provided moving expenses will no longer be tax free.

  • Unclear when this applies to benefits paid by a fiscal year employer. It would be logical for this to apply to the calendar year.
5.     No more adoption assistance programs

For taxable years starting after January 1, 2018, employer-provided adoption assistance plans will no longer be tax free.

6.     No exclusions for employee achievement awards

Effective January 1, 2018, this exclusion from income tax and FICA will not be permitted.

Under current IRC §74(c):

  • an employee achievement award is an item of tangible personal property given to an employee in recognition of either length of service or safety achievement and presented as part of a meaningful presentation. Gift certificates and other cash equivalents are not excludible.
  • The dollar limit is generally $400. Although non-discriminatory awrds which are qualified are excludible up to $1,600.
7.     Employer-provided housing will be partly taxable

Effective January 1, 2018, an employee may be partly (or fully) taxed on the value of employer-provided housing.

  • The allowable tax free value is equal to $50,000, reduced by $2 for every dollar of income in excess of $120,000.
  • The exclusion does not apply to more than one residence at any given time.
    • In the case of spouses filing a joint return, the one residence limit may be applied separately to each spouse for a period during which the spouses reside in separate residences provided in connection with their respective employments.

IRS releases 2018 limits for deferred compensation arrangements and certain welfare plans.

The IRS has revised many of the key limits that affect qualified retirement plans and welfare plans. While a few numbers remain the same – most notably, those used to identify highly compensated employees and key employees – the IRS has increased many others. Here are some of the most relevant for plan administrators:

 

2018 2017 2016 2015
Individual deferral limit
401(k), 403(b), and 457(b)
$18,500 $18,000 $18,000 $18,000
Age 50 Catch-up deferral limit 401(k) and 403(b) $6,000 $6,000 $6,000 $6,000
Maximum compensation $275,000 $270,000 $265,000 $265,000
Highly compensated employee* $120,000 $120,000 $120,000 $120,000
Key employee $175,000 $175,000 $170,000 $170,000
Defined contribution 415 limit $55,000 $54,000 $53,000 $53,000
Defined benefit 415 limit $220,000 $215,000 $210,000 $210,000
Healthcare flexible spending $2,650 $2,600 $2,550 $2,500
Social Security (OASDI) taxable wage base $128,400 $127,200 $118,500 $118,500

* The IRS has not changed the HCE limit since 2015, but it is still important to remember that highly compensated employees (“HCEs”) are determined based on their compensation in a “look-back year,” not the current year. For calendar year plans, the previous calendar year is the “look-back year.” This means that in 2018, highly compensated status is based on the 2017 limit.  For fiscal year plans, the “look-back year” will either be the previous plan year or, if elected on a consistent basis for all of an employer’s plans, the calendar year ending in the current plan year.

 

You can find these and other deferred compensation limits for 2018 in IRS Notice 2017-64, and in this announcement from the Social Security Administration. To see how these numbers have progressed over time, check out this link.

The increase to flexible spending salary reductions is contained in Notice 2017-58, along with a variety of other tax deduction and credit increases. (As usual, the IRS released HSA and High Deductible Health Plan numbers in the spring. For 2018, the HSA contribution limit rose $50 to $3,450 for self-only coverage, and the accompanying High Deductible Health Plan minimum deductible also rose $50 to $1,350. These and other related numbers are in Notice 2017-37.)

New mortality tables released

The IRS has updated its mortality tables for defined benefit plans. For 2018, plan sponsors must use these new tables to determine funding requirements and to calculate lump sum payments. Read the IRS announcement and review the tables in Notice 2017-60, and make sure your plan makes whatever adjustments is necessary for the 2018 plan year.

Do you want to use plan-specific mortality tables? The IRS has streamlined the procedure for requesting approval. Read Rev. Proc. 2017-55 to find out more.

Current forms and guidance

Need the most recent forms for employer ACA reporting? You can find forms and instructions for the Employer-Provided Offer and Coverage (1095-c) here, and for the related Information Return (1094-c) here.

The IRS has also compiled a Q&A on reporting requirements, including who needs to file these forms, due dates, what employers must report to employees, and more. Read it here.

Disaster tax relief updates

 

New relief for victims of hurricanes Harvey and Irma and their family members – faster access to 401(k) and 403(b) hardship withdrawals.

In the wake of these two catastrophic hurricanes, the IRS has offered extra flexibility for plan sponsors and participants that should streamline hardship withdrawals from 401(k) or 403(b) plans and loans from retirement plans and IRAs.

This new IRS relief will allow plan administrators to process hardship withdrawals for victims of the hurricanes or their immediate family members even if the plan does not currently allow hardship withdrawals. If your plan does allow such withdrawals, the IRS will allow you to forego some of your plan’s usual documentation rules.

Here are the details:

  1. This relief applies to participants who lived or worked in one of the counties identified by FEMA as a hurricane Harvey or Irma disaster area, or to a parent, child, or spouse of a person who lived or worked in a Harvey or Irma disaster area, as of the “incident date” noted by FEMA. FEMA’s list of disaster areas is here.
  2. A plan administrator may allow hardship withdrawals even if there is no language in the plan authorizing hardship withdrawals. In that case, your plan must be amended by the end of the first plan year beginning after December 31, 2017, but distributions may begin immediately.
  3. Plan administrators may rely on the representation of the participant on the need for the money – no need to require further documentation proving hardship.
  4. Withdrawal funds may be used in ways not usually allowed by regulations, including for food and shelter.
  5. Plans that impose certain procedural requirements for hardship withdrawals or for plan loans – such as documentation requirements, particular claim forms, etc – do not have to follow those procedures between August 23, 2017 (for Harvey) and September 4 (for Irma) and January 31, 2018, for all withdrawals and loans that are requested for hurricane relief. As long as it is “reasonable to believe” the participant, the plan may allow for a streamlined process and forego documentation. The plan administrator should make reasonable efforts to assemble any necessary documentation later, when practical.
  6. Spousal consent rules still apply (though if procedures require a death certificate, immediate production of the certificate is flexible under this relief).
  7. Participants who receive hardship withdrawals will not be prohibited from continuing to contribute to their retirement plan. Normally, there is a 6 month bar on contributions after a hardship withdrawal.
  8. Note that hardship withdrawals will be taxed as normal, which means they are includible in gross income and subject to the 10% early withdrawal tax.

Read all the details in the IRS Notice 2017-11 here for Harvey and here for Irma. You can also read about the IRS’s program to allow more flexible use of donated PTO for Harvey victims, which we discuss here.  We will keep you updated if the IRS announces more relief!

 

Latest updates: Check here for the IRS hurricane relief page. There is some relief – generally in the form of extended deadlines – for individuals and businesses in Puerto Rico and the U.S. Virgin Islands, as well as advice on reconstructing tax records.