Lisa A. Berkowitz Herrnson

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Prior to the enactment of the Tax Increase Prevention Act of 2014 (“TIPA”) in December 2014, effective for 2014, mass transit commuters were only able to contribute a maximum of $130 per month on a pre-tax basis toward their transit expenses (a reduction from $245 per month permitted in 2013).  TIPA retroactively increased the maximum pre-tax contribution limit for employees’ mass transit commuting expenses to the level permitted for parking expenses, i.e., $250 per month, as provided under Code Section 132(f).  However, this increased monthly cap expired again on December 31, 2014, so it is currently capped at $130 for 2015, unless Congress extends it further.  If this sounds familiar, it is.  Congress took similar action to retroactively increase benefits in 2012, and the IRS issued similar guidance on retroactive adjustments in early 2013.

Please refer to our February 26, 2015 blog post for potential legislative developments regarding the ability to convert after-tax contributions to Roth contributions.

Plan sponsors seeking to provide employees with the ability to make after-tax contributions to a 401(k) plan may be interested in adding, along with the common Roth contribution feature, non-Roth after-tax contribution and “in-plan Roth rollover” features to their 401(k) plans.  These additional features would allow plan participants to save up to $53,000 (for 2015 and as reduced by matching and other employer contributions) annually with limited future tax liability.

On December 13, 2013, the IRS issued Notice 2014-5 which provides temporary relief for satisfying the nondiscrimination requirements under Section 401(a)(4) of the Internal Revenue Code (the “Code”) for plan sponsors that maintain defined benefit plans which have been closed to new hires.

Many defined benefit plan sponsors have implemented “soft freezes” of their plans, closing them to new hires, but continuing defined benefit plan accruals for participants hired before the “soft-freeze.”   These employers might then implement a new or enhance an existing defined contribution plan for new hires.  Over time, the defined benefit plan might no longer pass coverage testing under Code Section 410(b) on its own because of greater turnover among the non-highly compensated employee group covered by the plan relative to the highly compensated employee population.  As a result, the frozen defined benefit plan must be aggregated with the defined contribution plan to satisfy the coverage requirements of the Code (the defined benefit plan, when aggregated with the defined contribution plan for testing is referred to as the “Aggregated Plan”).  

On March 28, 2013, the IRS issued Revenue Procedure 2013-22 which establishes a program for the IRS to accept applications for opinion and advisory letters for 403(b) prototype plans and 403(b) volume submitter plans, respectively, starting June 28, 2013.  The new program is similar to the pre-approved plan program maintained by the IRS for tax-qualified plans with one significant difference – an employer who adopts a pre-approved 403(b) plan will not be able to apply for an individual determination letter for the 403(b) plan.  In addition, the IRS has stated that it is not establishing a determination letter program for individually designed 403(b) plans at this time.  Although many large employers will likely continue to use individually-designed 403(b) plans, the program offers employers an alternative to adopting an individually-designed plan to satisfy the written plan requirement under the final regulations issued under Section 403(b) of the Internal Revenue Code.

What happens if a tax-exempt organization becomes ineligible to sponsor a Section 403(b) Plan because it loses its exempt status under Internal Revenue Code Section 501(c)(3)?  As an example, loss of tax-exempt status may occur automatically if the organization fails to file an annual Form 990 information return for three consecutive years.  It may also lose its exempt status if the IRS revokes or terminates exempt status for other reasons.

Final Internal Revenue Code Section 403(b) regulations, which became effective January 1, 2009, require that plan sponsors adopt written 403(b) Plan documents.  A 403(b) Plan is a form of defined contribution retirement plan that may only be offered by employers that are tax-exempt entities under Section 501(c)(3) of the Internal Revenue Code or that are…

On January 2, 2013, President Obama signed the American Taxpayer Relief Act of 2012 (“ATRA”) into law.  ATRA, adopted as an alternative to stepping over the “fiscal cliff,” preserves most of the Bush-era tax cuts and reinstates several other lapsed tax provisions. Several provisions of ATRA are of particular interest to employers, employees, and employee benefit administrators, because they offer new options for retirement planning or extend certain existing benefits options. Even more recently, the IRS has issued guidance with respect to certain key aspects of ATRA related to qualified transportation fringe benefits.