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.
Lisa A. Berkowitz Herrnson
In-Plan Roth Rollovers and After-Tax Contributions: Maximizing Deferrals with Limited Future Tax Liability
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.
IRS Increases Maximum Employee Contribution to Health Care FSAs for 2015
The IRS announced yesterday that the maximum annual employee contribution to a health care flexible spending account plan is increasing by $50 to $2,550 for 2015 (up from the $2,500 limit that has applied since 2013).
Employers that sponsor health care FSAs should take this increase into account in preparing for open enrollment, and may…
IRS Issues Temporary Non-Discrimination Testing Relief for Closed Defined Benefit Plans and Request for Comments
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”).