No doubt, offering a defined contribution retirement plan – like a 401(k) – can have a positive impact on employee attraction, engagement, and retention. Plus, helping employees build a nest egg for the future is simply the right thing to do. Just make sure that when you take on the responsibility of being a plan manager, you’re also aware of the many regulations governing plan administration, such as timely remittance. Failing to comply violates Department of Labor and IRS regulations, and can result in significant penalties, plan disqualification, and more.

So, what is timely remittance? Once you deduct funds from your employees’ wages for contribution to a retirement plan or repayment of a plan loan (if applicable), timely remittance relates to how long it takes you to segregate those monies from general funds and remit them to the plan. Failing to remit contributions in a timely manner can be seen as taking a loan from the plan, which is a prohibited transaction.

To be timely, the process of segregating and remitting funds should occur:

• As soon as administratively possible for employers with more than 100 eligible plan participants.
• Within seven days of taking the deduction for employers with 100 or fewer eligible plan participants and no ERISA audit requirement.
• No later than the 15th business day of the month following the end of the month that the deductions occurred (as per DOL regulation 2510.3-102).

It sounds simple, but there’s more to it. As noted by the American Institute of Certified Public Accountants (AICPA) in its March 2021 Primer Series, the 15 business days “is not a safe harbor for depositing deferrals; rather, these rules set the maximum deadline if that amount of time is the earliest that is reasonably required to be able to separate the plan assets from the employer’s corporate assets.”

If other payroll items, like tax withholdings can be segregated inside of the 15-day period, employee contributions and loan repayments must be segregated on that earlier date as well. What’s more, if the company can segregate employee contributions from general assets within three business days, for example, failing to do so can be considered late remittance. Even if the remittance process is shortened from four days to three days during the year (for example, you change payroll processors and the new one is quicker), you could be responsible for untimely remittance for the months where it took four days.

What’s the big deal? Holding onto the money for too long can result in lost earnings for the plan participants.

To fulfill fiduciary responsibilities, plan management must monitor timely remittances, regardless of whether payroll is processed in-house or by a third party. This can be accomplished with a policy that requires regular reconciliation of plan contributions according to the trust statement to payroll records, as part of ongoing internal control procedures.

If at any time there should be a delay in segregating and remitting the funds, it’s wise to document what happened in detail and hold onto any supporting records. It’s also a good idea to consult an ERISA lawyer to evaluate whether a deposit was late and is considered a prohibited transaction.

As for next steps, refer to the IRS’ 401(k) Plan Fix-It Guide and the DOL’s FAQs about Reporting Delinquent Participant Contributions on Form 5500.

In general, you’ll need to report the prohibited transaction by completing and submitting Form 5500. There are penalties for each day that a remittance was delayed. The plan administrator may also be subject to civil monetary penalties and tax liabilities for failing to report delinquencies on Form 5500 and if an auditor fails to note a missing delinquent contribution schedule.

If you have any questions on this or other accounting, tax, payroll, or audit issues, please don’t hesitate to give RBT CPAs a call. We’re a leader in the Hudson Valley and we care about getting the details right so you can focus on other things like your business. RBT CPAs: We succeed when we help you succeed. Give us a call today.

Please note: The information is this article should not be construed as legal advice. When you need such advice, it’s always best to contact your legal counsel.

Health Savings Accounts (HSAs), Flexible Spending Arrangements (FSAs), Archer Medical Savings Accounts (Archer MSA), and Health Reimbursement Arrangements (HRAs) give employees the opportunity to set aside pre-tax income to pay for eligible medical expenses (rather than itemize and file for a tax deduction if expenses exceed 7.5% of qualified income). In mid-March, the Internal Revenue Service (IRS) posted frequently asked questions (FAQs) providing more details about the types of expenses that are eligible for reimbursement through tax-advantaged plans.

As noted on IRS.gov, “These FAQs are part of the National Strategy on Hunger, Nutrition, and Health. The National Strategy provides a roadmap of actions the federal government will take to end hunger and reduce diet-related diseases by 2030.”

In keeping with that line of thinking, the FAQs largely focus on costs related to nutrition, wellness, and general health, addressing questions about the cost of nutritional counseling, weight-loss programs, weight-loss food and drinks, gym memberships, over-the-counter medications, and more.

That does not mean a new pair of expensive running shoes is fair game. IRS.gov says, “Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. They also include the costs of medicines and drugs that are prescribed by a physician. Medical expenses must be primarily to alleviate or prevent a physical or mental disability or illness. They don’t include expenses that are merely beneficial to general health.”

According to the FAQs, dental, eye and physical exams are all considered eligible expenses, as are expenses for alcohol abuse disorder programs and smoking cessation programs. The cost of therapy used to treat a mental illness is eligible, as are costs for nutritional counseling and weight loss programs to treat a specific, physician-diagnosed disease like obesity.

When it comes to the cost of a gym memberships, it’s considered an eligible expense when purchased “for the sole purpose of affecting a structure or function of the body (i.e., prescribed physical therapy for an injury)” or for treating a physician-diagnosed disease (i.e., obesity, hypertension, or heart disease).

More information about eligible expenses can be found in IRS Publication 502, Medical and Dental Expenses, and Tax Topic 502, Medical and Dental Expenses.

These clarifications follow other changes to certain tax-advantaged accounts as the pandemic wound down. For example, certain pandemic relief measures affecting FSAs (like allowing any balance remaining to rollover from one year to the next) ended in 2022, although employers can choose to allow rollovers up to annual limits — $570 for 2023 and $610 for 2024). (Cuadra Deanna. “The pandemic FSA carryover allowance is over: Here’s what’s changed.” November 11, 2022. Benefitnews.com.) Also, the Continuing Appropriations Act of 2023 allows certain telehealth benefits to be provided before a deductible is met under a high deductible health plan, without disqualifying the covered person from being eligible to participate in an HSA. (For more details, visit Fisherphilips.com.)

If you are a plan sponsor, it’s a good idea to let employees know about the clarifications provided in the IRS FAQs, as they could get reimbursed on out-of-pocket expenses that they may have thought were previously excluded.

While you help employees understand how to maximize tax-advantages available in a benefits program, RBT CPAs is here to help you maximize your tax strategy for your business. We’re a leading accounting, tax, audit and business advisory services firm serving the Hudson Valley for over 50 years. To learn more, give us a call. We would love to talk and see what we can do to help you be more successful.

Please note: We are accountants and financial experts – not benefits attorneys. We are providing this content for informational purposes only; it should not be construed as legal advice. If you are considering communicating or making changes to benefits, we strongly encourage you to seek advice from benefits counsel.

With group medical plan coverage costs projected to increase between 5% and 6% next year, employers are in a tough spot. Keep offering this valuable coverage and absorbing big cost increases as part of their overall recruitment, retention, and engagement efforts, or consider an alternative that’s growing in popularity: Individual Coverage Health Reimbursement Accounts (ICHRAs).

ICHRAs came into being in 2020 and allow employers to reimburse employees with tax-free dollars for some or all the cost of medical insurance they purchase on their own, as well as certain out-of-pocket costs like copayments and deductibles. They are similar to a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) introduced in 2017 but offer more flexibility and features.   Here are some highlights:

• The employer decides how much to contribute to the ICHRA. As long as that amount is considered “affordable”, an employer will meet any Affordable Care Act coverage mandate that applies.
• A covered employee purchases his/her own coverage – inside the Marketplace or out – and gets reimbursed with ICHRA funds to offset some or all of the monthly premiums (depending on how much the employer contributes). This enables the employee to decide which plan has the benefits (i.e., prescription drug), network doctors, and other features that are meaningful to him/her. Employers can also contribute funds to help cover out-of-pocket costs.
• If an employee chooses to purchase a plan outside of the ACA Marketplace, the employer can offer him/her the option to pay any premium amounts above the employer’s ICHRA contribution using tax-free dollars via a cafeteria plan.
• ICHRA reimbursements are tax-deductible for employers and tax-free for employees. So instead of paying payroll taxes on reimbursements given, the reimbursements qualify as an employer tax deduction. In addition, reimbursements are not considered taxable income to employees.

As a result, employees are given the flexibility to choose the coverage that best meets their cost and healthcare needs. Employers can get out of the resource-intensive business of managing, negotiating, and paying directly for group medical plan coverage. Plus, they can manage costs better than ever because they set the limit on how much they’ll contribute to an ICHRA.

ICHRAs also offer a lot of flexibility to employers. For example, an employer can choose which classes of employees are eligible for the ICHRA, while still offering a group medical plan to others. So, an employer may decide to offer an ICHRA to employees in New York, but not Ohio; to full-time employees, but not part-time; etc. An employer can even decide to offer the ICHRA as the only medical plan option to all new hires (a good way to transition away from group medical plan sponsorship over time).

With ICHRAs, small businesses that couldn’t afford to offer traditional coverage now have an option that can strengthen their ability to attract and retain employees. Businesses that already offer medical plan coverage may decide an ICHRA may be a better fit for certain employee classes. All employers may view it as a viable alternative to taking on the risk of managing, negotiating with, and paying for group medical plan coverage.

According to ICHRA FAQs issued jointly by the U.S. Department of Treasury, the U.S. Department of Labor, and the U.S. Department of Health and Human Services, it is projected that “in the next 5-10 years, roughly 800,000 employers will offer Individual Coverage HRAs to pay for insurance for more than 11 million employees.”

Still, there are a lot of technicalities that need to be worked through if you’re considering making the move. For example, employees must choose between the ICHRA and health premium tax credit through the ACA Marketplace. Also, small employers must choose between an ICHRA or Small Business Healthcare Tax Credit – they can’t have both.

For more information, review Healthcare.gov’s ICHRA Decision Guide; Takecommandhealth.com’s guide; and Healthinsurance.org’s ICHRA overview.

Interested in learning more? RBT CPA affiliate Visions Human Resource Services staff is available to conduct benefit plan analysis, while RBT CPAs can help you understand the tax implications of choosing an ICHRA versus other options. Give us a call if you have any questions about this or anything related to your accounting, tax, audit, and business advisory needs. We’ve been serving businesses in the Hudson Valley for over 50 years and believe we succeed when we help you succeed. Call RBT CPAs today.

At various times of the year, the IRS announces benefit plan limits for the following year. It’s important to understand these limits – and make sure your benefit-eligible employees do, too – in order to maximize what your company and employees get out of the benefit plans you invest in and offer.

Benefit plans are a great way to enhance your company’s employee value proposition and support your attraction, recruitment, and retention efforts. To maximize the investment you and your employees make in benefit plans, it’s important to provide clear and frequent communication explaining how benefits work and what employees can do to get the most from them. This is especially true when a communication can help an employee gain tax advantages and avoid losing money – this is where plan limits come in.

For example, earlier this year the IRS announced 2023 health care flexible spending account (FSA) limits are increasing to $3,050 (from $2,850 this year). That’s good news, as it helps employees put aside more tax-free money to pay for eligible out-of-pocket health care expenses, while reducing their taxable income – both of which will no doubt be welcomed given inflation and the current economic environment.

There are three caveats:

1. Employees need to know about changes to limits and what it could mean to them.
2. Employees need to know how to change their benefit elections to take advantage of new limits.
3. Employees need to know what happens if they don’t use health care FSA funds and file claims by IRS deadlines (they lose the money). Extended grace periods for using the money in 2020 and 2021 due to federal stimulus packages are not available in 2023.

The important phrase here is “employees need to know.” If you also offer a high deductible health plan with a health savings account (HSA), things get even more complicated. Employees need to know whether an FSA or HSA is best for their situation.

See how complicated it can get? That doesn’t even get into defined benefit, defined contribution, compensation, and other IRS limits that will apply in 2023.

Since you have a business to run and may or may not have the resources who can spend the time educating your employees about all of the ins and outs of benefits, you may want to reach out to your benefits administrator for help.

RBT CPA’s affiliate — Spectrum Pension and Compensation – offers third party administration and related services (including communication) for clients in the Hudson Valley and beyond. While you won’t be competing with Fortune 100 companies for attention, you will get customized, personalized services to ensure compliance while promoting the value your plans deliver to your company and team.

Interested in learning more? Click here to see the summary of 2023 limits Spectrum shared with its clients and prospects just a few weeks ago and here to learn what Spectrum can do for your business and employees in 2023 and beyond.

Some employers had found a competitive edge in recruiting and retention by offering student loan assistance benefits. Others were considering adding them to their rewards programs. Then, Biden’s student loan relief was passed, leaving employers to ponder their next move.

As reported on BenefitsPro.com in September, 4 of 10 employers are taking another look at what to do with student loan benefits following the release of Biden’s plans. “The administration is directing the U.S. Department of Education to cancel $10,000 in federal student loan debt for borrowers earning less than $125,000 annually. Pell Grant recipients will see up to $20,000 eliminated. According to the White House, this initiative will assist up to 43 million borrowers, including eliminating the full remaining balance for roughly 20 million people.”

In an International Foundation of Employee Benefits Plans survey, almost 9% of participating employers offer a company student loan benefit and 16% are considering offering one. 11% are going to take another look at their strategy; 60% don’t plan on making any changes; and 31% don’t know what they’re going to do. Of the employers that do offer a benefit, 28% reimburse the employee directly; 21% offer refinancing; and 3% provide a match in a defined contribution account. Participating employers indicate student loan benefits help with retention and recruitment; reduces employees’ financial stress; and drives employee engagement. On the other hand, some employers have faced pushback from employees who don’t benefit.

What do employees think? As reported on BenefitNews.com, a survey conducted by Betterment at Work found almost 60% of employees felt their employer should help them pay off debt. 74% indicated they’d leave their jobs for another company offering loan repayment benefits.  Perhaps the most potent finding: 86% would stay with an employer for at least five years if they offered repayment benefits.

Employers striving to regain their footing following the Great Resignation and Great Reshuffling may want to take note, especially since the impact of Biden’s plan is limited to those who incur Federal student loan debt by June 30, 2022 and who meet certain income requirements. Even after Biden’s plan pays out benefits, 23 million will still have student loan debt (not including new debt incurred after June 30.)

According to Forbes, more than 50% of today’s students leave college with debt, the average being $28,950. 92% of loans are federal, with the balance being private. Borrowers between 25 and 34 owe about $500 billion in federal student loans; between 35 and 49 owe $620 billion; between 50 and 61 owe about $282 billion; and 2.4 million aged 62 or older owe $98 billion in student loans.

The application for student loan forgiveness under the Biden plan is scheduled to open this month. Eight million people are expected to receive automatic forgiveness; the balance need to apply, but there are some issues being worked through. Just last week, eligibility was scaled back due to legal challenges. In addition, some borrowers want to opt out of the loan forgiveness to avoid state taxes that they would not be subject to otherwise. The number of cases on the docket challenging the law is rising.

While details surrounding Biden’s plan are being settled, the clock is ticking on another benefit offered under the Coronavirus Aid, Relief and Economic Security (CARES) Act to employers. As reported by The College Investor,  “Section 2206 of the CARES Act allows a portion of employer provided student loan assistance to be excluded from income. Whether those payments are made directly to the employee or the lender, they will be tax-free. The income exclusion is up to $5,250 per year per employee.” As of now, this tax advantage is available through December 31, 2025.

For updates on Federal Student Loan Forgiveness, sign up on the U.S. Department of Education subscription webpage.

While we’re not benefit experts or lawyers, at RBT CPAs, we do know taxes, audits and accounting. If you have any questions about how the CARES Act income inclusion may impact your company, give us a call. We’ve been supporting businesses and municipalities in and around the Hudson Valley for over 50 years.

If you’ve been racing to comply with SECURE and CARES Act retirement plan amendment deadlines, take a breath! In August, the IRS issued Notice 2022-33 extending some deadlines.

As reported by the Society for Human Resource Management (SHRM), private sector 401(k) plan sponsors who took advantage of benefit changes under the Setting Every Community Up for Retirement Enhancement (SECURE) Act and the Coronavirus Aid, Relief and Economic Security (CARES) Act were previously required to make plan amendments this year. The deadline for:

• Calendar year plans were originally December 31, 2022.
• Non-calendar year plans were the last day of the first plan year beginning on or after January 1, 2022.
• Collectively bargained plans were the exception, with the deadline being the last day of the first plan year after the start of 2024.

The IRS notice issued August 3 pushed the deadline back to December 31, 2025, for both calendar year and non-calendar year plans, with a few exceptions: Under the CARES Act, the amendment deadline for loans, in-service withdrawals, and temporary suspension of loan repayments remain unchanged.

It is important to note, there are different deadlines for government plans. Government sponsors of 457 (b) plans and 403(b) plans for public school employees have until 90 days after the close of the third regular session beginning after December 31, 2023, to amend the plan (although the deadline for certain 457(b) amendments resolving compliance issues may be later).

The SECURE Act requires employers to extend eligibility for certain part-time employees starting in 2024; ease withdrawals by new parents for birth or adoption expenses; and permanently increase the start date for minimum distributions from age 70 ½ to 72. However, it’s important to note that further guidance is pending.

The CARES Act, which offered flexibility to employers during COVID, suspended minimum distribution requirements in 2020 and made it easier for new parents to make withdrawals for birth or adoption expenses. Plan loan limits were also doubled to the lesser of $100,000 or 100% of a vested account balance.

Should you need professional assistance with adopting the amendments, making the effective date retroactive, and operating plans as if the amendments are in effect, our Spectrum Pension and Compensation Inc. affiliate can help. For almost 30 years, Spectrum has been assisting employers in the Hudson Valley and beyond with employee benefits, including retirement plans, health insurance, and life insurance. The Spectrum team is available to provide technical assistance in plan design, compliance, administration, and record keeping. Click here for their contact information.

For accounting, auditing, and tax support, RBT CPAs is always here to help. Give us a call.