Employee Benefits Blog

Archives for 2014

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Employers Can’t Reimburse the Cost of Employees’ Individual Health Policies on an After-Tax Basis

As we discussed in a previous post, the IRS issued Notice 2013-54 in September 2013 to discuss the application of the “market reform” provisions of the Affordable Care Act (ACA) to certain employer healthcare arrangements, including, among others, arrangements under which employers pay for employees’ individual health insurance policies, either by paying the insurance company directly or by reimbursing the employee.

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Transitional Reinsurance Program Fee Reporting Due Date is Extended to December 5

The Patient Protection and Affordable Care Act (ACA) established the transitional reinsurance program to stabilize premiums in the individual market place by reducing the costs of high-risk enrollees. The program requires health insurance issuers and certain self-insured group health plans offering major medical coverage to make contributions under the program for 2014 through 2016.  The fee is $63 per covered life in 2014 and will decrease in 2015 and 2016.

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IRS Clarifies Effective Date of New IRA Rollover Timing Restriction

As we discussed in a post earlier this year, the United States Tax Court issued a decision in early 2014 which will significantly restrict the ability of IRA owners to take a distribution from an IRA with the intention of escaping tax by rolling it over to another IRA within 60 days.  Code Section 408(d)(3)(B) states that the rollover exclusion does not apply to a second IRA distribution if, at any time during the 1-year period ending on the date of the second distribution, the individual received a previous IRA distribution and rolled it over into an IRA.  For many years, the IRA industry believed that the “once a year” limitation applied on an IRA-by-IRA basis, and not globally to all IRAs owned by a single individual.

The Tax Court case, Bobrow v. Commissioner, held that the plain language of the statute requires that the limitation apply on an aggregate basis.  Subsequently, the IRS indicated in Announcement 2014-15 that it will follow the Bobrow decision and will apply the limitation on an aggregate basis.  However, and helpfully, the announcement also stated that it would not apply the aggregate limitation to distributions occurring before January 1, 2015.

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The “Back Door” Roth IRA Contribution – Unintended Tax Consequences

Following up on an article that appeared in the BNN Newsletter last October, this blog post will focus on an important and increasingly popular tax planning tool involving Roth conversions.

Many high income individuals are ineligible to directly make Roth IRA contributions because their modified adjusted gross income (MAGI) is too high. For 2014, MAGI in excess of $191,000 for married individuals filing jointly, and $129,000 for single individuals, means that these individuals would not be eligible to contribute directly to a Roth.

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IRS Announces Pension Plan Limitations and Other Inflation-Adjusted Amounts for 2015

On October 23, 2014, the Internal Revenue Service issued IR-2014-99, a news release announcing the 2015 inflation adjustments affecting pension plans and other retirement-related items.  The following are among the more significant changes (and non-changes) for 2015:

  • The elective deferral limit for employees who participate in 401(k), 403(b), and most 457 plans is increased from $17,500 to $18,000.
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), and certain 457 plans is increased from $5,500 to $6,000. (This limit has been at the $5,500 level since 2009.)
  • The limitation on the annual benefit under a defined benefit plan remains unchanged at $210,000.
  • The limitation on annual contributions to defined contribution plans is increased from $52,000 to $53,000.
  • The limit on the amount of compensation that can be taken into account for purposes of numerous tests is increased from $260,000 to $265,000.
  • The dollar limitation concerning the definition of key employee in a top-heavy plan remains unchanged at $170,000.
  • The limitation used in the definition of highly compensated employee is increased from $115,000 to $120,000.
  • The limitation on elective SIMPLE retirement account contributions is increased from $12,000 to $12,500.
  • The catch-up contribution limit for employees aged 50 and over who participate in a SIMPLE plan is increased from $2,500 to $3,000.
  • The deductible amount for an individual making contributions to an individual retirement account remains unchanged at $5,500. (This is before taking into account the additional contribution of $1,000 available to taxpayers who are at least 50 years of age; this amount is unchanged.)
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Self-Directed Brokerage Accounts in 401(k) Plans

401(k) plans typically allow participants to choose their investments from a limited set of funds (often 12 to 20 choices) that are selected and monitored by the plan sponsor. Some plans, however, choose to offer self-directed brokerage (SDB) accounts, also known as “brokerage windows,” which allow their participants to choose to invest in almost any publicly available investment.