IRS Benefit Plan Limits for 2018

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On October 19, 2017, the Internal Revenue Service released Notice 2017-64, announcing cost-of-living adjustments (COLAs) that affect contribution limits for retirement plans in 2018. The list below, although not exhaustive, highlights key changes that retirement plan sponsors should be aware of, as well as some limitations that remain unchanged from 2017:

  • The elective deferral limit is increasing from $18,000 to $18,500.
  • The aggregate contribution limit for defined contribution plans is increasing from $54,000 to $55,000.
  • The annual compensation limit used to calculate contributions is increasing from $270,000 to $275,000.
  • The limitation on the annual benefit under a defined benefit plan is increasing from $215,000 to $220,000.
  • The dollar limit used in the definition of “key employee” in a top-heavy retirement plan remains unchanged at $175,000.
  • The dollar limit used in the definition of “highly compensated employee” remains unchanged at $120,000.
  • The catch-up contribution limit for employees age 50 or older remains unchanged at $6,000.

The table below displays the 2017 and 2018 limits for a host of tax breaks:

401(k) Plan Limits for Plan Year 2018 Limit 2017 Limit
401(k) Elective Deferral Limit1 $18,500 $18,000
Catch-Up Contribution2 $6,000 $6,000
Defined Contribution Dollar Limit $55,000 $54,000
Compensation Limit3 $275,000 $270,000
Highly Compensated Employee Income Limit $120,000 $120,000
Key Employee Officer Limit $175,000 $175,000
Non-401(k) Limits
403(b) Elective Deferral Limit1 $18,500 $18,000
Defined Benefit Dollar Limit $220,000 $215,000
457 Employee Deferral Limit $18,500 $18,000

 

SEP and SIMPLE IRA Limits 2018 Limit 2017 Limit
SEP Minimum Compensation $600 $600
SEP Maximum Compensation $275,000 $270,000
SIMPLE Contribution Limit $12,500 $12,500
SIMPLE Catch-Up Contribution2 $3,000 $3,000
IRA and Roth Limits
IRA and Roth Contribution Limit $5,500 $5,500
Catch-Up Contribution2 $1,000 $1,000

1Employee deferrals to all 401(k) and 403(b) plans must be aggregated for purposes of this limit.
2Contributors must be age 50 or older during the calendar year.
3All compensation from a single employer (including all members of a controlled group) must be aggregated for purposes of this limit.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Investors should consult a tax preparer, professional tax advisor, and/or a lawyer.

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When CYA is Exposing Rather than Covering Your Assets

shutterstock_286288565.jpgI recently had the privilege of attending the National Plan Advisors Association (NAPA) annual conference where some of the best and brightest minds in the retirement plan industry gather to discuss best practices, pending and recent legislation, and industry trends. In one of the sessions it was noted that it is a fiduciary breach to make decisions just to protect yourself as a fiduciary. For me this was one of those “ah-ha” moments that made me sit back and think about the way that we make decisions as a co-fiduciary. Are we keeping the best interests of the participants first or focusing so myopically on fiduciary best practices from a CYA (cover your behind) perspective that we miss out on the big picture? Since I was forced to contemplate our process, I thought I would also share the basics of fiduciary duty with you as well.

 The plan is in place to serve the best interests of the
plan participants and their beneficiaries.
It’s as simple as that!

 One of the most important ERISA fiduciary rules is the exclusive purpose rule, established by ERISA Sections 403 and 404: “A fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries.” In order to fulfill your requirements of sole interest, ERISA established 4 guidelines for fiduciaries to follow.

  • The first is loyalty. To demonstrate this quality the fiduciary must act for the exclusive purpose of providing benefits to participants and their beneficiaries; and defraying reasonable expenses of administering the plan. In essence this guideline sums up that you work for your plan participants when running the 401(k) plan and it is your responsibility to make sure they get appropriate services for a reasonable fee.
  • The next is prudence. Fiduciaries must act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like goals. This is where the advice of an investment professional can be the most valuable as it is expected for you- the fiduciary – to not just act with good intentions, but also with knowledge and care.
  • The third guideline is diversification of investments. Fiduciaries must diversify the investments of the plan so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. In my opinion, this is one of the most difficult demands to balance since most investors expect to have positive returns in their account every quarter despite market conditions or investment mix. However as the plan fiduciary, you have the responsibility to protect the participants from themselves.
  • The final guideline is to follow the plan’s governing documents. Fiduciaries must operate the plan in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with [ERISA] provisions. While this may seem like a “no-brainer”, it is in this guideline where I have seen the most common problems arise. We have seen everything from not having a signed plan document to incorrectly following the plan’s definition of compensation to mismatched vesting schedules.

In nearly all cases, plan fiduciaries act in the best interest of their participants through their actions without even thinking twice about it. However, there are very strict and expensive rules around making sure that you do so consistently and that you don’t inadvertently shift focus from them to you and your assets.

jamie kertis headshotJamie Kertis, AIF®, QKA
Retirement Plan Specialist
Grinkmeyer Leonard Financial
1950 Stonegate Drive / Suite 275 /Birmingham, AL 35242
Office: 205.970.9088 / Toll-Free: 866.695.5162
www.grinkmeyerleonard.com

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March 15th – A Scary Day to Open the Mailbox

March 15th – A Scary Day to Open the Mailbox

Highly Compensated Employees Receiving Taxable Refunds
and Why This Type of Refund is NOT a Good Thing for Employees or Employers

mailboxToday, some of you may go to your mailbox and find a check waiting for you. This check may be anywhere from a couple of hundred dollars to a couple of thousand dollars. And on any other day, but today, you would probably be thrilled to find such a surprise awaiting you in a mass of otherwise junk mail. However today, March 15th, is the deadline to make 401(k) compliance testing refunds to avoid a 10% excise tax (to your employer); therefore, if you receive a check today (or in the next few days) from the company that recordkeeps your company’s 401(k) plan , then you have just received a 401(k) refund.

A 401(k) refund occurs when your company’s 401(k) plan fails its annual discrimination testing; the amount that is refunded is the amount that was needed to be taken out of the 401(k) account of each affected highly compensated employee in order to bring the test into a passing range. If you are an HCE that receives a refund, then you will also receive a 1099-R and you must report the amount as taxable income in the year in which the refund was received.

hce 1.pngThere are several annoying implications of receiving money out of your retirement plan. The first is that money that you intended to be set aside as tax deferred is now taxable at a time that is more than likely earlier than you would have liked. The second is the potential impact to your overall retirement plan in that any money that comes out of the plan early is lessening that which you had saved for retirement. Finally, we have found that there is a compounding negative impact on your desire to want to continue to participate in your company’s retirement plan when refunds are received in multiple years.

hce2.pngReady for the silver lining in this article? There are options that are available to retirement plans to correct the issue of refunds. Most of them involve examining the plan design to determine if there could be any modifications that would improve the likelihood of the plan passing testing. A Safe Harbor plan design would allow the plan to receive an automatic pass of the compliance tests that cause refunds. Adding an automatic enrollment option could give an immediate boost to participation numbers which could give added support to the testing calculations. Implementing a comprehensive education plan could bolster both participation and deferral percentages. These are just a few of the designs and your plan would have to be reviewed in detail to determine if one of these or potentially another solution would be right.

Need a better way to keep retirement contributions in your 401(k) plan? Want to improve your company’s plan for the HCE’s so you can attract and retain them? Contact me to discuss.   jamie@grinkmeyerleonard.com or 205-970-9088.

jamie kertis headshot2

Jamie Kertis, AIF®, QKA / Retirement Plan Specialist
Grinkmeyer Leonard Financial
1950 Stonegate Drive / Suite 275 / Birmingham, AL 35242
Office: 205.970.9088 / Toll-Free: 866.695.5162 / Fax: 866.774.9029
Jamie@grinkmeyerleonard.com / www.grinkmeyerleonard.com /  Find us on Facebook  / Follow my blog

 

PPA Document Restatement Deadline Looming

ppa.jpgEvery six years, the IRS requires that employers using a pre-approved prototype or volume-submitter 401(k) document restate their plan document to incorporate any and all changes made to the regulations and tax laws that impact retirement plans. This go-around is labeled the Pension Protection Act of 2006 (PPA) restatement process and will pick up the changes made by the Pension Protection Act of 2006, the final 415 regulations, the Heroes Earnings Assistance and Relief Act (HEART) of 2008 and the Worker, Retiree and Employer Recovery Act (WRERA) of 2008. The window for restating your plan document opened on May 1, 2014 and will close April 30, 2016 which means if this is the first time that you are hearing about this restatement phase it is of the utmost importance that you contact your third party administrator (TPA) as soon as possible to get your restatement started.

Do I Have To?

The long and the short of it is “Yes”! Your retirement plan must follow the written plan document and the written plan document must follow the rule, regulations, and guidelines set forth by the IRS and the Department of Labor (DOL). Therefore, when one of these governing bodies makes changes to the rules, your plan must adopt to follow these rules. Most of the time, these changes can be handled through an interim or “snap-on” amendment to the plan, but when the number or the complexity of the changes gets to be too great, a restatement is required.

Who Should be Helping Me?

Your plan’s third party administrator (TPA) is more than likely the party that will be assisting you with the restatement of your document. Keep in mind that it is common for your TPA and your record keeper to be the same company, but that is not always the case. It is also important to determine if your plan is using a prototype or volume submitter document or if your plan is an individually drafted or designed plan. In most cases, your plan will be either a prototype or volume submitter, but it is definitely important to make sure you are clear on what type of plan you have as that will impact when and how your plan has to be restated.

Anything Else I Should Know?

Now could be a good time to review your plan to determine if any changes should be made to the plan provisions that are not specifically covered by the required restatement. For example, your plan could review the definition of compensation, Roth options, and/or automatic enrollment procedures and make updates to these or other provisions during the mandatory restatement. Just be ware not to change any “protected benefits” such as the timing or forms of distributions during the process.

By this time, hopefully your provider has already completed the restatement process or at least you plan’s TPA has reached out to you to discuss the restatement process; however, if not, it is time to make a call to your plan provider to get the process started! If you have any questions about the restatement process, what it means to your plan, or where to go for assistance, please let me know by calling 205-970-9088 or emailing me at jamie@grinkmeyerleonard.com.

Jamie Kertis, AIF®, QKAjamie kertis headshot
Retirement Plan Specialist
Grinkmeyer Leonard Financial
1950 Stonegate Drive / Suite 275 /Birmingham, AL 35242
Office: 205.970.9088 / Toll-Free: 866.695.5162
www.grinkmeyerleonard.com

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IRS: Skip Optional Compliance Questions on the 5500, 5500-SF for 2015

IRS: Skip Optional Compliance Questions on the 5500, 5500-SF for 2015

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For 2015, plan sponsors should skip the compliance questions that were just added to the Forms 5500 and 5500-SF, and to Schedules H, I and R for the 2015 plan year. Revised versions of the 2015 instructions for both forms contain the new information regarding the optional questions.

The Department of Labor (DOL) announced this change in a Feb. 16 message to software developers for EFAST-2, the electronic system by which Forms 5500 are submitted. While the DOL has not yet posted these revised versions on the website of the DOL’s Employee Benefits Security Administration (EBSA), the agency says that it plans to do so.

The revised instructions read as follows:

Form 5500

IRS Compliance Questions. New Lines 4o, 4p 6c, and 6d were added to Schedules H and I. The IRS has decided not to require plan sponsors to complete these questions for the 2015 plan year and plan sponsors should skip these questions when completing the form.

New Part VII (IRS Compliance Questions) was added to Schedule R for purposes of satisfying the reporting requirements of section 6058 of the Code. The IRS has decided not to require plan sponsors to complete these questions for the 2015 plan year and plan sponsors should skip these questions when completing the form.

Form 5500-SF

IRS Compliance Questions. New Lines 10j, 14c, 14d, and new Part IX (IRS Compliance Questions) were added to this Form for purposes of satisfying the reporting requirements of section 6058 of the Code. The IRS has decided not to require plan sponsors to complete this question for the 2015 plan year and plan sponsors should skip this question when completing the form.

The IRS added questions to the Form 5500 and its schedules relating solely to IRS compliance issues because the IRS now requires that certain filers submit the Form 5500 Series electronically. It had said that answering the IRS compliance questions it added to the form was optional for the 2015 plan year.

Jamie Kertis, AIF®, QKAjamie kertis headshot
Retirement Plan Specialist
Grinkmeyer Leonard Financial
1950 Stonegate Drive / Suite 275 /Birmingham, AL 35242
Office: 205.970.9088 / Toll-Free: 866.695.5162
www.grinkmeyerleonard.com

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2016 Pension Plan Limits Announced

UnknownThe Internal Revenue Service last week announced the 2016 cost-of-living adjustments for the dollar limitations under qualified retirement plans, 403(b) plans and 457(b) governmental plans. Most pension plan limits remain unchanged for 2016. Click here to see 2016 limits as well as the limits for the previous two calendar years.

Jamie Kertis, AIF®, QKAjamie kertis headshot
Retirement Plan Specialist
Grinkmeyer Leonard Financial
1950 Stonegate Drive / Suite 275 /Birmingham, AL 35242
Office: 205.970.9088 / Toll-Free: 866.695.5162
www.grinkmeyerleonard.com

Contact Jamie

Follow Jamie on LinkedIn

Follow Jamie’s Blog