New and Important Employee Benefits Developments for 2013
The 2013 New Year has started with a number of important developments affecting employer-sponsored retirement plans, health plans, fringe benefit programs, and payroll procedures. The following list highlights some important developments that employers need to know about now.
Updated IRS Correction Program for Retirement Plans (EPCRS)
The IRS has issued Revenue Procedure 2013-12, updating the Employee Plans Compliance Resolution System (EPCRS) generally effective April 1, 2013. The updated correction program includes new submission procedures, including standardized application forms and revised appendices, expanded correction procedures for 403(b) plans, and a number of smaller but important changes affecting 401(k) and defined benefit plan corrections.
IRS Guidance on "Pay or Play" Healthcare Reform Provisions
The IRS has issued proposed regulations and FAQs regarding the employer shared responsibility (or "pay-or-play") provisions under the Patient Protection and Affordable Care Act (PPACA). These provisions generally impose a penalty tax, beginning in 2014, on employers that either do not offer full-time employees (and their dependents) group health coverage, or who offer group health coverage that is deemed unaffordable or that does not provide an actuarial value of at least 60%. Employers will want to take action now to ensure that they are compliant with these rules by 2014. Miller & Chevalier will host a webinar to discuss the proposed regulations, as well as other imminent taxes, fees, and implementation issues under PPACA, on Thursday, January 25 at 1:00 pm EST. An invitation will be sent in the coming weeks.
Important Issues in the American Taxpayer Relief Act of 2012
- Expanded in-plan Roth conversion opportunities. The Act removes previous limitations on the opportunity to convert retirement plan funds into the plan's Roth account. Previously, participants in 401(k) and other plans allowing Roth contributions could convert plan funds into Roth accounts in the plan only if the amounts were otherwise distributable as an eligible rollover distribution (e.g., after age 59-1/2 for traditional 401(k) pre-tax contributions). The Act removes this limitation, which means that participants may convert plan funds into the plan's Roth account at any age, as long as the plan allows them to do so. Despite the substantial income tax liability potentially associated with a Roth conversion, the expanded opportunities may be of interest particularly to younger, higher-paid employees.
- Permanent extension of the maximum exclusion of $5,250 for educational assistance plans. Twenty-six years after its enactment as a temporary provision, the Act finally makes Internal Revenue Code section 127 permanent by revoking the operative sunset provisions imposed by earlier legislation. This permanent extension also means that the 2001 amendment permitting the exclusion's application to graduate programs remains in force.
- Temporary extension of parity in transportation benefit exclusions. The Act reestablishes parity between the exclusion for parking benefits ($240/month) and employer-provided mass transit benefits, such as rail transportation and vanpools (previously $125/month, now $240/month) through December 31, 2013. While it may be too late for employees to adjust their salary reduction election for January 2013, employers may want to consider allowing prospective adjustments for the remaining months of 2013. The Act also restored the parity provisions for parking and mass transit benefits retroactively as of January 1, 2012. Employees may not retroactively modify their 2012 elections, but where employers allowed employees to make 2012 salary reductions for mass transit in excess of the $125 limit, those amounts are now excludable up to $240.
- End of the "payroll tax holiday" for employees. The Act does not extend the two percent rate reduction on FICA taxation for employees that was in effect for the past two years. Accordingly, beginning January 1, 2013, the employer is again required to withhold the employee's share of FICA taxes at the same rate as the employer's (i.e., 6.2%). IRS Notice 1036 instructs employers to increase FICA tax withholding to 6.2% as quickly as possible, but no later than February 15, 2013. Any FICA tax underwithholding should be corrected no later than March 31, 2013, as is currently permitted under employment tax regulations.
- Wage withholding tables for 2013. The IRS released new Federal income tax withholding tables on December 31, 2012, before passage of the Act, and then issued revised tables on January 3, 2013, to take the income tax rate changes under the Act into account. IRS Notice 1036 advises employers to continue using the 2012 withholding tables until the employers implement the 2013 withholding tables. In all cases, employers must implement the new 2013 withholding tables no later February 15, 2013.
- Supplemental wage withholding. Although we are awaiting official guidance, it is clear that the mandatory flat withholding rate on supplemental wages exceeding $1 million in the aggregate for the year remains the highest marginal rate (previously 35%, now 39.6%). During a payroll tax conference call yesterday, the IRS said that the optional flat withholding rate for supplemental wages not exceeding $1 million in the aggregate will remain at 25%.
We are happy to provide further assistance on these matters.
For further information, please contact any of the lawyers from the Employee Benefits practice.
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