The Obama administration recently approved transfers of unused vacation pay to retirement savings. Read more in a Wall Street Journal article .
"The techniques are available for use with all qualified plans, which include 401(k), Keogh and profit-sharing plans but not individual retirement accounts or SEP-IRAs. While the rules don't currently extend to the 403(b) plans used by nonprofit organizations, the Treasury is willing to consider expanding them to include such plans, Mr. Iwry says.
The rules apply to "cash-outs" of unused vacation, sick leave or personal days that occur either annually or when an employee leaves a job. If an employer pays for such leave either in whole or in part, the worker could contribute the entire payment to the company's plan, unless he or she has already maxed out the annual contribution limit. This year the limit for most workers is $16,500, or $22,000 for those over 50.
Employers that don't currently pay workers for unused leave may want to reconsider their policies. The transfers compensate workers and encourage savings but don't increase base pay.
Companies can opt to pay workers for unused leave only if they bank the money in a 401(k) or other qualified plan -- in effect requiring employees to save or else forgo the money. A firm also may let employees decide whether to save or spend."
9/23/09
Lecture this Thursday on Health Insurance Regulation
Thursday, September 24, 2009 | 12:15 – 2:00 p.m. |Room 503
The Distinguished Lecture Series in Employee Benefits Law was created as a forum for the John Marshall faculty to learn about cutting-edge employee benefits issues from some of the top academics in the field.
Amy B. Monahan, Associate Professor of Law, University of Minnesota Law School
The lecture will include:
* A thorough examination of the permissible justifications for regulating the substance of health insurance contracts through mandated benefit laws
* A proposal to make mandated benefit laws efficient and value-based
* Case studies of mandates for infertility treatment, diabetes care, and autologous bone marrow transplant to illustrate the value-based process
* A discussion of the role an efficient, value-based process should play in broader health care reform
Food will be served.
Please register online at www.jmls.edu/events/092409EB.asp
Questions? Contact Steven Szydelko, program coordinator,
At 6szydelko@jmls.edu
ABA Tax Section CLE in Chicago
The Fall ABA Tax Section CLE meets this Thursday, September 24 through Saturday,September 26, at the Hyatt, 151 E. Wacker. Check out the program.
ABA Tax Section Chair for 2009-10 is a Benefits Attorney
Stuart M. Lewis, a Washington D.C. Benefits attorney is the ABA's Tax Section chair for 2009-10.
More on Regulation of Bank Executives' Pay
Looking for a hot topic in employee benefits law for a law review article or LL.M. publishable paper? Regulation of bank executives' pay has been grabbing headlines. Further regulation of executive compensation practices will yield greater opportunities for attorneys in this area. For current reading on regulation of bank executives' pay, see the The New York Times and again.
The Wall Street Journall has an op-ed today, and articles on global executive pay issues, such as this article on exec comp in Hungary. And check out this Fortune article from the beginning of September.
The Wall Street Journall has an op-ed today, and articles on global executive pay issues, such as this article on exec comp in Hungary. And check out this Fortune article from the beginning of September.
9/19/09
Global Regulation of Bank Executives' Compensation
In the wake of a global financial crisis (or during it, depending on your faith in Bernanke's assessments)world leaders have turned their attention to oregulation of bank executives' pay, including the compensation of traders. The Wall Street Journal's weekend edition for 9/19-9/20/2009 has several articles on the subject, including one on the expanded responsibilities of members of a corporate board's compensation committee.
Interestingly, a WSJ website search on fed reserve chairman yielded a list of articles mostly devoted to bank executives' compensation.
Fed's Plan on Pay Divides Industry
Boards Face Expanded Responsibilities
Restraining Bankers' Pay: Easy to Promise, Hard to Do
Interestingly, a WSJ website search on fed reserve chairman yielded a list of articles mostly devoted to bank executives' compensation.
Fed's Plan on Pay Divides Industry
Boards Face Expanded Responsibilities
Restraining Bankers' Pay: Easy to Promise, Hard to Do
Review of new Roth IRA rules
Wall Street Journal, 9/19-9/20/2009 weekend edition
Effective Jan. 1, 2010, the federal government is permanently dropping the income limit for transferring savings to a Roth IRA from a traditional individual retirement account or employer- sponsored retirement plan. Although the conversion is subject to income tax, future withdrawals (that meet holding requirements) would be tax-free.
This article reviews some common questions about the changes.
Q: I opened a traditional IRA several years ago in anticipation of the 2010 rule changes. None of my IRA contributions were tax-deductible, because my income is too high. And the market meltdown has left the value of my IRA below the amount invested. I assume that for me—and many others—a conversion would involve no tax bite whatsoever. True?
A: As long as none of your original IRA contributions were tax-deductible, and as long as your account value is worth the same or less than your original contribution amount at the time you convert, you would owe no tax if you convert the remaining assets to a Roth. In addition, you might be able to claim a miscellaneous itemized deduction for the loss, possibly allowing you to actually make money on the Roth conversion, says Ed Slott, an IRA consultant in Rockville Centre, N.Y.
Normally, losses within an IRA aren't deductible. But you may be able to deduct a loss if you convert your entire traditional retirement account to a Roth and the account contains only nondeductible, or after-tax, contributions. If you have multiple traditional IRA, Simplified Employee Pension (SEP) IRA and Simple IRA accounts, you have to convert all of them, and the total converted would have to be less than your basis—the value of the nondeductible contributions—to possibly claim a deduction.
Read the article.
Small Businesses Worry about Large Fines for Pension Fund Violations
From the Wall Street Journal, 9/19-9/20/2009 weekend journal
Five years ago, car-wash owner Orman Wilson set up a pension plan for himself and six employees. For that, he may owe the IRS a $1.2 million tax penalty.
Mr. Wilson, the owner of 19 coin-operated car washes in Houston, says he relied on four advisers, including a certified public accountant, to set up a plan that received approval from the Internal Revenue Service. Then, in late 2007, the IRS found fault with the plan and assessed it $250,000 -- plus special penalties of $1.2 million.
The penalties "would wipe us out," Mr. Wilson says.
Read the whole article.
9/12/09
The PBGC
The Pension Benefit Guaranty Corporation. Check out ERISA Title IV's affiliated organization's website.
Also, Prof. Kennedy could approve your externship with the PBGC. As long as you meet the required prerequisites.
Also, Prof. Kennedy could approve your externship with the PBGC. As long as you meet the required prerequisites.
Employment based health insurence is in trouble?
From Newsweek,
"Americans who have health insurance, we are told, are largely satisfied with it and terrified of losing it. Many of them assume that employment-based insurance—for all its flaws—is preferable to any other system. President Obama has gone out of his way to tell people who get their insurance from employers that they had nothing to fear:
If you are among the hundreds of millions of Americans who already have health insurance through your job, Medicare, Medicaid, or the VA, nothing in this plan will require you or your employer to change the coverage or the doctor you have. Let me repeat this: Nothing in our plan requires you to change what you have.
That's true. But powerful trends in the broader economy will. Even without reform, lots of people with employer-provided insurance are losing it. And those who still have it may find they'll be less satisfied with it in the future.
The latest report from the Census Bureau on income, poverty, and health insurance is full of interesting data. (For example, median household family income in 2008, at $50,303, was below where it was in 1998. Heckuva job, Bushie, Greenie, and the whole economic team!) Perhaps the most surprising census data are the significant evidence that, even absent a reform bill, the United States is slowly nationalizing health care. In 2008, enrollment in Medicare and Medicaid rose from a combined 81 million to a combined 85.6 million. Add in military health care, and some 87.4 million Americans in 2008 got health insurance directly from a government source—about 29 percent of the total. Meanwhile, health insurance became less tethered to work. The percentage of people covered by employment-based health insurance fell from 59.3 percent in 2007 to 58.5 percent 2008, and the percentage of those working full-time and part-time who lacked health insurance rose in 2008. The ranks of those getting insurance from employers include a substantial number of public employees—teachers, state workers, etc. (In August, government accounted for about 17 percent of payroll jobs.) Add those folks to the people receiving coverage from Medicare, Medicaid, and the military, and, as Jon Bon Jovi once put it, "we're half way there." Most of the Americans who have insurance may already be getting it through the government, one way or another."
Read the article here.
Thank you for the article, Jon Armstrong at blurbomat.com
"Americans who have health insurance, we are told, are largely satisfied with it and terrified of losing it. Many of them assume that employment-based insurance—for all its flaws—is preferable to any other system. President Obama has gone out of his way to tell people who get their insurance from employers that they had nothing to fear:
If you are among the hundreds of millions of Americans who already have health insurance through your job, Medicare, Medicaid, or the VA, nothing in this plan will require you or your employer to change the coverage or the doctor you have. Let me repeat this: Nothing in our plan requires you to change what you have.
That's true. But powerful trends in the broader economy will. Even without reform, lots of people with employer-provided insurance are losing it. And those who still have it may find they'll be less satisfied with it in the future.
The latest report from the Census Bureau on income, poverty, and health insurance is full of interesting data. (For example, median household family income in 2008, at $50,303, was below where it was in 1998. Heckuva job, Bushie, Greenie, and the whole economic team!) Perhaps the most surprising census data are the significant evidence that, even absent a reform bill, the United States is slowly nationalizing health care. In 2008, enrollment in Medicare and Medicaid rose from a combined 81 million to a combined 85.6 million. Add in military health care, and some 87.4 million Americans in 2008 got health insurance directly from a government source—about 29 percent of the total. Meanwhile, health insurance became less tethered to work. The percentage of people covered by employment-based health insurance fell from 59.3 percent in 2007 to 58.5 percent 2008, and the percentage of those working full-time and part-time who lacked health insurance rose in 2008. The ranks of those getting insurance from employers include a substantial number of public employees—teachers, state workers, etc. (In August, government accounted for about 17 percent of payroll jobs.) Add those folks to the people receiving coverage from Medicare, Medicaid, and the military, and, as Jon Bon Jovi once put it, "we're half way there." Most of the Americans who have insurance may already be getting it through the government, one way or another."
Read the article here.
Thank you for the article, Jon Armstrong at blurbomat.com
9/11/09
Seniors who cannot afford to retire
The AARP Bulletin for September 2009 has an article on seniors who feel that they cannot afford to retire.
"Erma Paliani had worked a lot longer than she planned. But at age 92, Paliani finally called it quits this summer.
“I didn’t expect to work this long,” says the soft-spoken Paliani, who became a secretary for the federal government 67 years ago when Franklin D. Roosevelt was president, and eventually worked longer than nearly any other federal employee. For most of those years, the fear of not having enough money to live comfortably, a worry rooted in her experience of the Great Depression, compelled her to stay on the job.
Money worries also drive Jeanne Phillips, 85, who plans to keep working as long as she can, even after two heart attacks in the past five years, including one just eight months ago.
Without her job at a senior center in St. Louis, which supplements her Social Security, Phillips says she’d barely be able to afford the basics. So three days a week, she packs her nitroglycerin in her purse and heads off to work.
“I’ve never retired,” says Phillips, who was divorced some 40 years ago and never remarried. “If I could’ve retired comfortably, I would have. It would’ve been wonderful to be able to play golf and bowl and go to the art museum and theater. But I don’t have the money to do that.”
Phillips, Paliani and millions of others in their 60s, 70s, 80s—and even 90s—are changing the picture of retirement. Social Security records show that the average age for Americans to claim benefits is 63.9. But they are working longer than that—many need the money. In fact, the percentage of workers over 65 is increasing faster than any other age group, according to the Bureau of Labor Statistics.
Read the whole article.
Illinois' Millionaire Pension Club
The Chicago Sun Times is doing a four part series on the state pensions system.
The first part is excerpted below, The Millionaire Pension Club.
Sunday: Double-dippers -- collecting a pension and a paycheck from the taxpayers.
Monday: Fat pensions for union bosses -- and you pay for those, too.
Tuesday: Can this mess be fixed?
The Millionaire Pension Club
Tim Novak, et al.
Nearly 4,000 retired government workers have pensions that pay them at least $100,000 a year. They include politicians, judges, doctors and school administrators, as well as top cops, firefighters and park officials.
Thanks to cost-of-living increases, former Gov. James R. Thompson (left) has seen his pension rise 50 percent since he retired. U.S. Sen. Roland Burris, who had served as attorney general and comptroller before retiring, has seen his pension rise nearly 50 percent.
More than half have collected more than $1 million each since they retired. A few have topped $2 million. And five have gotten more than $3 million each, a Chicago Sun-Times investigation found.
And these numbers are soaring faster than taxpayers can afford.
Consider:
• 3,958 retirees have pensions paying $100,000 or more a year.
• 2,255 of those retirees have each collected more than $1 million in pension benefits. They include two doctors who have each gotten more than $3 million over the last 10 years.
• 14,280 retirees have pensions that pay them more than their final salaries. That's largely because all government pensions in Illinois automatically increase 3 percent every year.
• 11,521 retirees get checks from two or more government pension plans.
• 23 widows each get more than $100,000 a year, every year, in survivor benefits.
• 16 judges' widows have each gotten more than $1 million since their husbands died.
..................................................................................
Even as the economy has forced governments to cut services and jobs, they've had to borrow money or raise taxes to meet their soaring pension costs.
And the problem has lingered for decades, as elected officials continually postpone dealing with it, much like a homeowner putting off needed repairs. In fact, they've kept sweetening retirement benefits for themselves and others, even as they shortchanged the pension funds, diverting money to other programs and services. And early retirement programs have made things worse.
Read the whole article.
The first part is excerpted below, The Millionaire Pension Club.
Sunday: Double-dippers -- collecting a pension and a paycheck from the taxpayers.
Monday: Fat pensions for union bosses -- and you pay for those, too.
Tuesday: Can this mess be fixed?
The Millionaire Pension Club
Tim Novak, et al.
Nearly 4,000 retired government workers have pensions that pay them at least $100,000 a year. They include politicians, judges, doctors and school administrators, as well as top cops, firefighters and park officials.
Thanks to cost-of-living increases, former Gov. James R. Thompson (left) has seen his pension rise 50 percent since he retired. U.S. Sen. Roland Burris, who had served as attorney general and comptroller before retiring, has seen his pension rise nearly 50 percent.
More than half have collected more than $1 million each since they retired. A few have topped $2 million. And five have gotten more than $3 million each, a Chicago Sun-Times investigation found.
And these numbers are soaring faster than taxpayers can afford.
Consider:
• 3,958 retirees have pensions paying $100,000 or more a year.
• 2,255 of those retirees have each collected more than $1 million in pension benefits. They include two doctors who have each gotten more than $3 million over the last 10 years.
• 14,280 retirees have pensions that pay them more than their final salaries. That's largely because all government pensions in Illinois automatically increase 3 percent every year.
• 11,521 retirees get checks from two or more government pension plans.
• 23 widows each get more than $100,000 a year, every year, in survivor benefits.
• 16 judges' widows have each gotten more than $1 million since their husbands died.
..................................................................................
Even as the economy has forced governments to cut services and jobs, they've had to borrow money or raise taxes to meet their soaring pension costs.
And the problem has lingered for decades, as elected officials continually postpone dealing with it, much like a homeowner putting off needed repairs. In fact, they've kept sweetening retirement benefits for themselves and others, even as they shortchanged the pension funds, diverting money to other programs and services. And early retirement programs have made things worse.
Read the whole article.
9/8/09
French Restrictions on Executive Compensation
Blogger Urbanomics recently posted on France's restrictions of executive compensation.
"It is now well acknowledged that incentive arrangements skewed towards short-term returns that faced bankers, fund managers and traders played a critical role in inflating the sub-prime bubble and causing the deepest economic recession since the Great Depression. Accordingly, all recent efforts at regulatory reforms to impose greater oversight on the financial markets have sought to place curbs on executive compensation.
However, nothing substantial has till date been legislated or decreed into action. In the circumstances, the French government has taken the lead by concluding an agreement with the leading banks to limit executive compensation. It was agreed that up to two-thirds of bonus payments should be deferred for three years, while a third should be paid in shares of the bank. It was also agreed that the bonuses would be paid out based on the performances of the bank as a whole and not that of particular trading desks."
Read the whole post.
Also see this New York Times article:
French Bankers Accept Restrictions on Bonuses
The Precarious Promise of Post-Employment Health Benefits
From the The Tax Prof Blog's August 10, 2009 post.
Richard L. Kaplan (Illinois), Jordan Zucker (DLA Piper) & Nicholas J. Powers have posted Retirees at Risk: The Precarious Promise of Post-Employment Health Benefits, 9 Yale J. Health Pol'y, L. & Ethics ___ (2009), on SSRN. Here is the abstract
This article examines the increasingly troubled state of employer-provided health benefits for retirees. The availability of such benefits is a major determinant of both the timing of retirement and the financial security of those who retire. Despite the signal importance of these benefits to current and prospective retirees, employers have been steadily eroding their value and in many cases, eliminating these benefits outright. Such actions are often catastrophic for the retirees affected, especially if they are not yet eligible for Medicare.
This article begins by explaining the economic pressures that have precipitated this unfortunate development, including the increasing cost of health care generally. But much of the decline in retiree health benefits is attributable to financial accounting requirements that required employers to disclose the projected costs of these benefits. These accounting requirements have recently been extended to state and local government employers, and another wave of broken promises may lie just ahead.
The article next examines the extensive litigation regarding the erosion and/or termination of retiree health benefits, focusing on the Employee Retirement Income Security Act (ERISA). Claims that retirees have 'vested' rights to such benefits are analyzed in both the unionized and nonunionized employment contents, as well as claims of breach of fiduciary duty and estoppel. In short, ERISA has largely failed to protect the reasonable expectations of retirees concerning their post-employment health benefits.
The article then turns to alternative approaches that retirees might consider, including continuation coverage from their former employer, individually obtained health insurance, and health savings accounts. Finding serious problems with each of these approaches, the article considers recent legislative proposals to extend Medicare to early retirees, noting the impact of such an extension on existing employer health benefit programs for retirees and on individuals’ retirement timing decisions.
Richard L. Kaplan (Illinois), Jordan Zucker (DLA Piper) & Nicholas J. Powers have posted Retirees at Risk: The Precarious Promise of Post-Employment Health Benefits, 9 Yale J. Health Pol'y, L. & Ethics ___ (2009), on SSRN. Here is the abstract
This article examines the increasingly troubled state of employer-provided health benefits for retirees. The availability of such benefits is a major determinant of both the timing of retirement and the financial security of those who retire. Despite the signal importance of these benefits to current and prospective retirees, employers have been steadily eroding their value and in many cases, eliminating these benefits outright. Such actions are often catastrophic for the retirees affected, especially if they are not yet eligible for Medicare.
This article begins by explaining the economic pressures that have precipitated this unfortunate development, including the increasing cost of health care generally. But much of the decline in retiree health benefits is attributable to financial accounting requirements that required employers to disclose the projected costs of these benefits. These accounting requirements have recently been extended to state and local government employers, and another wave of broken promises may lie just ahead.
The article next examines the extensive litigation regarding the erosion and/or termination of retiree health benefits, focusing on the Employee Retirement Income Security Act (ERISA). Claims that retirees have 'vested' rights to such benefits are analyzed in both the unionized and nonunionized employment contents, as well as claims of breach of fiduciary duty and estoppel. In short, ERISA has largely failed to protect the reasonable expectations of retirees concerning their post-employment health benefits.
The article then turns to alternative approaches that retirees might consider, including continuation coverage from their former employer, individually obtained health insurance, and health savings accounts. Finding serious problems with each of these approaches, the article considers recent legislative proposals to extend Medicare to early retirees, noting the impact of such an extension on existing employer health benefit programs for retirees and on individuals’ retirement timing decisions.
9/1/09
A Special Report on Retirement Plans: Reducing or Eliminating Employer Contributions
Reducing or Eliminating Employer Contributions
Due to the economic downturn, many employers are seeking ways to control expenses. To that end, employers are looking more closely at reducing or eliminating contributions to their retirement plans. Reducing or eliminating an employer contribution can be done; but needs to be done correctly and with an understanding of the consequences of such reduction or elimination. Furthermore, special rules apply if the employer is a party to a collective bargaining agreement.
The Correct Approach
401(k) Plans Matching Contributions
Many employers have already implemented or are planning to reduce or eliminate the matching contribution they have been making on employee salary deferral contributions to their 401(k) plans. If the 401(k) plan is drafted such that the matching contribution is discretionary, both in terms of the amount the employer will contribute and whether the employer will make a contribution, then no amendment is needed to the 401(k) plan document. If the employer has previously announced that it will be making a contribution, or historically the employer has been making such contributions, the employer should announce in advance that it will be reducing or eliminating the match. Employees should also be given the opportunity to change their salary deferral contributions.
If the matching contribution is not discretionary, then the 401(k) plan document needs to be amended to permit a reduction or elimination of the match. Such amendment will only have prospective impact. Rather than eliminating the ability to make a matching contribution, it is preferable to amend the plan document to make the match discretionary in order to provide the employer with the greatest flexibility with respect to matching
contributions going forward.
Key point: employees should be given advance notice and the opportunity to change their salary deferral contributions. Please note that the document should be reviewed to be sure employees can change the salary election contributions.
Safe Harbor 401(k) Plans
Many employers utilize a 401(k) plan design, which includes what is commonly referred to as a “Safe Harbor” contribution. A Safe Harbor contribution permits the plan to automatically pass the specialized non-discrimination testing required of 401(k) plans. There are two types of Safe Harbor contributions. The elimination or reduction of either of these contributions must be done in strict accord with the Internal Revenue Service (IRS) rules. Because Safe Harbor contributions are mandatory, any changes to a Safe Harbor contribution require a plan amendment.
Read the entire article.
Special thanks to Malaika C. and Mary C., who provided this article and the Plansponsor.com article as supplements to EB 361.
Due to the economic downturn, many employers are seeking ways to control expenses. To that end, employers are looking more closely at reducing or eliminating contributions to their retirement plans. Reducing or eliminating an employer contribution can be done; but needs to be done correctly and with an understanding of the consequences of such reduction or elimination. Furthermore, special rules apply if the employer is a party to a collective bargaining agreement.
The Correct Approach
401(k) Plans Matching Contributions
Many employers have already implemented or are planning to reduce or eliminate the matching contribution they have been making on employee salary deferral contributions to their 401(k) plans. If the 401(k) plan is drafted such that the matching contribution is discretionary, both in terms of the amount the employer will contribute and whether the employer will make a contribution, then no amendment is needed to the 401(k) plan document. If the employer has previously announced that it will be making a contribution, or historically the employer has been making such contributions, the employer should announce in advance that it will be reducing or eliminating the match. Employees should also be given the opportunity to change their salary deferral contributions.
If the matching contribution is not discretionary, then the 401(k) plan document needs to be amended to permit a reduction or elimination of the match. Such amendment will only have prospective impact. Rather than eliminating the ability to make a matching contribution, it is preferable to amend the plan document to make the match discretionary in order to provide the employer with the greatest flexibility with respect to matching
contributions going forward.
Key point: employees should be given advance notice and the opportunity to change their salary deferral contributions. Please note that the document should be reviewed to be sure employees can change the salary election contributions.
Safe Harbor 401(k) Plans
Many employers utilize a 401(k) plan design, which includes what is commonly referred to as a “Safe Harbor” contribution. A Safe Harbor contribution permits the plan to automatically pass the specialized non-discrimination testing required of 401(k) plans. There are two types of Safe Harbor contributions. The elimination or reduction of either of these contributions must be done in strict accord with the Internal Revenue Service (IRS) rules. Because Safe Harbor contributions are mandatory, any changes to a Safe Harbor contribution require a plan amendment.
Read the entire article.
Special thanks to Malaika C. and Mary C., who provided this article and the Plansponsor.com article as supplements to EB 361.
Mercer Suggests Sponsors Prepare in Case Plan Limits Drop
In a new GRIST report, Mercer points out that depending on inflation levels for August and September 2009, the statutory formula used for calculating limits on elective deferrals, catch-up contributions, plan compensation, Code Section 415 annual additions and maximum defined benefit (DB) annuities, and compensation amounts for identifying highly compensated and key employees could produce lower figures in 2010 relative to 2009.
Employers may want to prepare now by assessing the implications for participant communications (including whether a 204(h) notice might be required for pension plans), financial planning tools, benefit calculation systems, and discrimination testing (including ADP/ACP testing for 401(k) plans), Mercer suggests.
The code is unclear what happens when the rounded value under the statutory formula goes down. Mercer said one interpretation is that the prior year's limit remains in effect, and another possibility is that the limit goes down, but not below the base amount ($15,000 for the elective deferral limit and $200,000 for the compensation limit).
The second interpretation, if adopted, also could adversely affect ADP/ACP nondiscrimination testing for 401(k) plans, as some limits could go down while others remain unchanged under the statutory formula, Mercer warns.
Read the full article.
Employers may want to prepare now by assessing the implications for participant communications (including whether a 204(h) notice might be required for pension plans), financial planning tools, benefit calculation systems, and discrimination testing (including ADP/ACP testing for 401(k) plans), Mercer suggests.
The code is unclear what happens when the rounded value under the statutory formula goes down. Mercer said one interpretation is that the prior year's limit remains in effect, and another possibility is that the limit goes down, but not below the base amount ($15,000 for the elective deferral limit and $200,000 for the compensation limit).
The second interpretation, if adopted, also could adversely affect ADP/ACP nondiscrimination testing for 401(k) plans, as some limits could go down while others remain unchanged under the statutory formula, Mercer warns.
Read the full article.
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