This post provides a quick roundup of recent legislative and regulatory developments relating to employee benefits and compensation.
- Proposed Rules on Updated Life Expectancy and Distribution tables used for determination of Minimum Required Distributions: The IRS and Department of Labor have released proposed rules regarding an update to the life expectancy tables used in the determination of required minimum distributions from qualified retirement plans, individual retirement accounts and annuities, and certain other tax-favored employer-provided arrangements. As background, the minimum distribution requirements for qualified plans are in place to help ensure that the favorable tax treatment available to qualified plans is used to primarily provide retirement income to participants and designated beneficiaries rather than to increase the estate value of a participant. Therefore, the minimum distribution rules require various commencement dates and patterns of distributions so that payments are not disproportionately deferred. The IRS and Department of Treasury have reviewed the current life expectancy tables currently prescribed in regulations in comparison with recently available mortality data and have determined those tables should be updated to reflect current life expectancies. The updated tables will reflect longer life expectancies than the current tables and would thus reduce the amount of required distributions allowing participants to maintain higher amounts in their plans to account for the possibility of living longer. The effective date of the updated tables in the proposed regulations would apply for distribution calendar years beginning on or after January 1, 2021. Further details, analysis, tables and examples can be found here. Comments on the proposed rules must be submitted by January 7, 2020 and a public hearing is scheduled for January 23, 2020.
- Changes in interest rates: Interest rates remained flat over the month of October 2019, which is approximately 100 basis points lower than December 31, 2018 based on the FTSE full yield curve. The decline in rates results in lower plan funded statuses as liabilities increase and plan assets struggle to outperform. As the end of 2019 approaches, plan sponsors should consider their options for increasing their plan’s funded status and minimizing the volatility surrounding it. These options include making additional contributions to their plans or implementing plan de-risking strategies. Details on the FTSE yield curve can be found here.
- 2020 Inflation-Adjusted Benefits Limits: Following is a quick summary of some of the key inflation-adjusted retirement and health and welfare benefit-related limits for 2020.
Qualified Plan Limits
A complete historical table of COLA adjustments to these qualified plan limits published by the IRS is available on their website.
PBGC Premiums and Maximum Benefit Guarantees
The PBGC has published a historical table of premium rates, available on their website.
FSAs, Pre-Tax Parking, and HSAs
Beginning in 2020:
- The annual limit on employee salary reduction contributions to health flexible spending arrangements will be $2,750.
- The monthly limit on pre-tax parking will be $270.
- The monthly limit on pre-tax transit passes will be $270.
The 2017 inflation-adjusted limits relating to Health Savings Accounts (HSA) will be as follows.
Individuals otherwise eligible to contribute to an HSA who are at least 55 years old can make an additional catch-up contribution of up to $1,000 per year. The $1,000 catch-up contribution limit is set by statute, and is not subject to inflation adjustment.
Social Security Wage Base
*Individuals with earned incomes of more than $200,000 ($250,000 for married couples filing jointly) pay an additional 0.9% Medicare tax on the excess earnings. This additional tax does not apply to the employer share. However, employers must withhold the additional amount for employees earning more than $200,000.
Additional information is available at: https://www.ssa.gov/cola/.
Robert Davis is a managing director in Deloitte Consulting LLP and leads the Washington Rewards Policy Center of Excellence, dedicated to informing practitioners and clients about legislative and regulatory developments relating to employer-sponsored rewards programs.
Christine Drager is a specialist leader in the Human Capital practice of Deloitte Consulting LLP focusing on pension actuarial consulting and assisting employers with the design, valuation, and financial management of pension and other postretirement benefit plans.
Maria Moliterno is a manager in the Human Capital practice of Deloitte Consulting LLP and specializes in actuarial consulting for pensions and other employee benefits.