Every fall, just as we can expect the leaves to change colors and the weather to turn colder and a little dreary, we can also anticipate changes we will see coming in the following year with respect to employee benefit plans.
As a plan sponsor, you’re permitted to make voluntary changes to your retirement plan whenever you choose. Occasionally, changes within the regulatory environment require mandatory amendments to be adopted by plan sponsors. Fortunately, if you’re a defined contribution (including 401(k)) plan sponsor, there are currently no required amendments for 2014 you need to be worried about. However, an amendment that may build some steam as time passes is related to Roth in-plan transfers or conversions.
In-Plan Roth Conversions
The American Taxpayer Relief Act of 2012 (ATRA), also known as the “fiscal cliff” legislation that was signed into law earlier this year, has liberalized the rules governing in-plan Roth conversions. Prior to the Act, plan participants were only permitted to convert certain pre-tax monies in their retirement plan account to Roth money by the way of a rollover. As part of the original in-plan rollover rules, a distributable event had to occur in order for a participant to transfer balances in a pre-tax “bucket” to a Roth “bucket” within the same retirement plan. ATRA now permits money that is not yet distributable to be transferred to a Roth account, provided the plan sponsor amends the plan to allow such transactions to occur.
Many questions and details still need to be addressed by the federal government as it relates to these transfers, and if not administered correctly these transfers could result in unintended consequences. If you feel this could be beneficial to your plan design, talk with your plan providers and watch for additional guidance from the Internal Revenue Service (IRS) before incorporating this feature into your plan.
Changes To Flexible Spending Account Plans
Another regulatory change going into effect in 2014 deals with flexible spending account (FSA) plans. FSA plans are designed to build a pool of pre-tax money to be used to cover the cost of eligible medical expenses for a particular plan year. A key issue with the FSA plan is that an individual doesn’t necessarily know what the out-of-pocket medical expenses will be for the next year and may misjudge the amount of money they elect to be placed into the FSA plan. If the individual estimates too high and has unused dollars in the plan at the end of the plan year, the individual essentially forfeits those dollars.
Due to comments the IRS received regarding this “use-it-or-lose-it” feature, in 2005, the IRS authorized an optional 2-½ month grace period, whereby an employer could elect to include this feature under the plan. This would give participants 2-½ months after the plans year-end to use any available dollars which had not been spent by plan year-end.
Because the Affordable Care Act (ACA) limits the annual amount that individuals can place in the FSA plans to $2,500, the IRS determined that after 30 years of existence, maybe it’s time to drop the “use-it-or-lose-it” rule. If the employer elects to drop this rule, participants will now have the option to now carry over $500 of unused dollars from one plan year to the next.
Cost Of Living Adjustments
Finally, on Oct. 31, 2013, the IRS announced the cost of living adjustments (COLA) affecting dollar limitations for retirement related items for 2014. While many amounts/limits remained unchanged, there are a few changes to note. This table shows COLA adjustments for 2014.
Pension Audit Help
These retirement plan changes, along with other regulatory requirements you face on a daily basis, may have your head spinning right now. Don’t feel like you have to travel this road alone! Contact Rea & Associates. Our Ohio benefit plan audit team can come alongside of you and help you make sense of how these changes may impact you, as well as help you ensure you’re compliant with federal benefit plan regulations.