On November 9, 2023, the Internal Revenue Service (IRS) announced cost-of-living adjustments to the applicable dollar limits for certain health and welfare plan benefits, including those for health flexible spending arrangements and commuter benefit plans, among other important updates. Employers, many of whom are in the midst of or have already completed open enrollment for 2024, will need to review these limits as soon as possible. Employer action may include, for example, determining whether enrollment portal updates and communications to participants are necessary. For employees who have already made 2024 elections without the benefit of the new dollar limits, employers may need to reach out to these employees to inform them of the new amounts and consider implementing a new election window.
The Internal Revenue Service recently announced the cost-of-living adjustments to the applicable dollar limits for various employer-sponsored retirement and welfare plans for 2024. Certain health and welfare plan limits have not yet been released.
Most of the dollar limits that are subject to adjustment for cost-of-living increases will increase for 2024. The Social Security Administration released separate adjustment amounts.
The Internal Revenue Service (IRS) recently opened a new determination letter approval program for 403(b) retirement plans—commonly used by nonprofit organizations—which allows sponsors of certain individually designed plans to apply for a favorable determination letter. Long available to 401(k) retirement plan sponsors, determination letters can provide sponsors with advance assurance from the IRS that plans are compliant with the Internal Revenue Code. Plan sponsors of eligible 403(b) programs should take advantage of this new opportunity to submit a determination letter application to the IRS.
In December 2022, Congress enacted groundbreaking legislation as part of the SECURE 2.0 Act codifying an opportunity for employers to provide matching contributions within a tax-qualified retirement plan based on their employees’ qualified student loan payments outside the plan. This On the Subject discusses the SECURE 2.0 student loan benefit and other employer options for providing tax-advantaged benefits to employees based on student loan payments. It also examines the open questions and current implementation challenges for sponsors of 401(k) and 403(b) plans hoping to implement the student loan benefit.
A new bill introduced in Congress would allow 403(b) plans maintained by tax-exempt organizations to make use of collective investment trust (CIT) investments. CITs are an alternative to mutual funds that may provide significant cost savings for 403(b) plans and their participants. The SECURE 2.0 Act took the first steps along this path by making amendments to the Internal Revenue Code to permit 403(b) plans to invest in these vehicles; however, that legislation failed to include the necessary changes to securities laws. The Retirement Fairness for Charities and Educational Institutions Act of 2023 aims to take the next steps by amending the Securities Act and the Investment Company Act to allow 403(b) plans to make use of CITs.
What do retirement plan professionals and participants need to know about the recently passed SECURE 2.0 Act of 2022? In this webinar replay, McDermott’s Employee Benefits team discusses the many changes to retirement plans and individual retirement accounts, including the key changes for 401(k), 403(b) and defined benefit plans as well as other changes impacting health and welfare plans. Discussion topics include the following:
Automatic plan enrollment and escalation
Allowance of matching contributions for elective deferred student loan repayments
Join partners from McDermott’s Employee Benefits team on Wednesday, January 25, 2023, as they discuss the impact of the recently passed SECURE 2.0 Act of 2022. With over 90 changes to retirement plans and individual retirement accounts (IRAs), this webinar will highlight the key changes for 401(k) and 403(b) plans and defined benefit plans, as well as changes in the Consolidated Appropriations Act, 2023 impacting health and welfare plans.
Topics Include:
Automatic Plan Enrollment and Escalation
Allowance of Matching Contribution for Elective Deferred Student Loan Repayments
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) 2022Δ2023 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) 2022Δ2023Health 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) 2022Δ2023 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 US Department of Labor (DOL) recently issued guidance for the first time on the investment of retirement plan assets in cryptocurrencies. Compliance Assistance Release No. 2022-01 cautions 401(k) plan fiduciaries to “exercise extreme care” before allowing participants to invest plan assets in cryptocurrencies because cryptocurrencies “present significant risks and challenges to participants’ retirement accounts, including significant risks of fraud, theft, and loss.” In this Intellectual Property & Technology Law Journal article, McDermott Partners Andrea S. Kramer and Brian J. Tiemann outline what retirement plan fiduciaries need to know about cryptocurrency investments in the current market.
The Internal Revenue Service (IRS) recently announced the cost-of-living adjustments to the applicable dollar limits for various employer-sponsored retirement and welfare plans for 2022. Most of the dollar limits currently in effect for 2021 will increase.
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