Employee Benefits Blog

Posts tagged IRS

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Hardship Withdrawals 401(k) Plans

A retirement plan may allow for hardship withdrawals. Hardship withdrawals are made in response to an immediate and heavy financial need (the events test) and the necessity to satisfy that need by using plan assets (the needs test). The Treasury regulation outlines two different standards for determining if these two tests are satisfied: the general standard (depends on the individual’s facts and circumstances) and the safe harbor standard. Plan fiduciaries are required to follow one of the noted standards for each of the two tests (events and needs).  Plan sponsors should obtain and file documentation to support type and amount of the hardship.

The following is a general discussion of the rules, and does not take into special circumstances, such as Hurricane Sandy, that can result in the rules being modified.  A helpful summary of the general rules can be found on the IRS’s website.

Posted Under: 401(k) plans, IRS

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Health FSA Recent Developments

Under current law, there is no maximum amount that can be contributed annually to a flexible spending account (FSA) in a Section 125 cafeteria plan, although employers generally have voluntarily imposed annual limits to such contributions.  Among its tsunami of provisions, the Patient Protection and Affordable Care Act of 2010 (the Act) imposes a $2,500 annual cap on contributions to an FSA.  Last Thursday, the IRS issued Notice 2012-40, which contains numerous significant provisions regarding FSAs.  This post will briefly discuss three of these provisions.