The US Department of the Treasury and the Internal Revenue Service recently issued proposed regulations on the use of forfeitures by tax-qualified retirement plans. The proposed changes provide welcome clarity for plan sponsors but may require revisions to plan administration and legal plan documents.
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.
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.
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.
On Wednesday, both houses of Congress voted to pass the final tax reform bill (the Act) and send it to President Trump for signature. The Act represents the most sweeping overhaul of the tax code in decades and will have a significant impact on businesses and individual taxpayers. The final bill also includes changes that will impact employer-provided benefits, including fringe benefits, certain types of executive compensation and benefits provided through tax-qualified retirement plans.
For more information about some of these changes, please see our On The Subject publications or visit our Tax Reform Resource Center.
Puerto Rico enacted new legislation in February that will require changes to tax-qualified retirement plans covering Puerto Rico employees, including both Puerto Rico-only and dual-qualified (US and Puerto Rico) retirement plans. Act No. 9-2017 revises a number of Puerto Rico qualified retirement plan rules including contribution limits, rules related to nondiscrimination testing and employer deductions for retirement plan contributions. Questions remain about how and when to implement these changes, but the 2017 Act became effective immediate upon enactment, so plan sponsors should be prepared for the possibility of mid-year 2017 changes to their retirement plans.
The Internal Revenue Service (IRS) recently issued Notice 2015-86, which provides some additional clarification, in the form of questions and answers, on the treatment of same-sex spouses under tax-qualified retirement plans and health and welfare plans, including cafeteria plans, as a result of the June 26, 2015, decision from the Supreme Court of the United States in Obergefell v. Hodges.
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