October 2017 Newsletter

October 2017

In order to avoid costly penalties and administratively burdensome correction procedures, plan sponsors must remain up-to-date with respect to applicable Health and Welfare plan limits. Yesterday,October 20, 2017, the IRS announced cost-of-living adjustments affecting 2018 dollar limitations for Health and Welfare plans and other related Health and Welfare Benefits items. We’ve included some of the most commonly used business benefits below. While some limits remain the same, there have been a number of adjustments.

An Employee Stock Ownership Plan (ESOP) is a type of employee benefit plan, similar to a profit sharing plan, that is designed to invest primarily in the stock of the employer.  ESOPs can be used by private or public companies in a variety of ways: as a vehicle for retirement for employees, a tax-advantaged method to raise new capital, an exit strategy to give owners an avenue to sell their shares, to create a subsidiary of the employer, or as an incentive to increase employee morale by sharing ownership of the company with its employees. ESOPs can own any percentage of the employer, including owning up to 100% of all the employer stock. Because the ESOP is often used as a financing tool for the employer, and because the qualified retirement plan is the shareholder for the employer, there are features unique to ESOPs that are not available for other qualified retirement plans.

Unlike a 401(k) plan, the ESOP typically consists solely of contributions from the employer rather than contributions from the employee, and an ESOP is specifically allowed to finance the purchase of employer stock. To contribute to the ESOP, the employer makes tax-deductible contributions in cash to repay a loan that was used to purchase shares, or the cash is used to purchase shares directly from the employer or owners without the use of a loan. The employer may also make tax-deductible contributions to the ESOP in the form of employer shares rather than cash, but this likely dilutes the value of the existing shares and is not the preferred method of contribution to an ESOP. Once the ESOP obtains additional shares of the employer, the employees then receive the employer shares in their ESOP account based on a formula that takes into consideration the employee’s compensation and years of service with the employer. All employees are eligible to participate in the ESOP after a certain period.

 

Health and Welfare Plan Inflation-Adjusted Limits for 2018
Item IRS Code Section 2018 Limit 2017 Limit Note
Unearned Income of Minor Children Taxed as if Parent’s Income 1(g) $1,050 $1,050 The child’s gross income must be greater than $1,050 but less than $10,500.
Adoption Credit 23 $13,840 $13,750 The credit begins to phase out for taxpayers with modified adjusted gross income more than $207,580.
Employee Health Insurance Expense of Small Employers 45R $26,700 $26,200 The limit of $26,700 is used in calculations to determine the actual credit for an employer.
Cafeteria Plans 125 $2,650 $2,500 Limit on voluntary employee salary reductions for contributions to health FSA.
Qualified Transportation Fringe Benefit 132(f) $260 limit on commuter highway vehicle

$260 limit on qualified parking

$255 limit on commuter highway vehicle

$255 limit on qualified parking

Monthly limit on the amount that may be excluded from an employee’s income for qualified transportation benefits.
Adoption Assistance Programs  137 $13,840 $13,570 The credit begins to phase out for taxpayers with modified adjusted gross income more than $207,580.

 

 

One of the most common compliance issues for employers and plan sponsors is failure to adhere to annual retirement plan limits. In order to avoid costly penalties and administratively burdensome correction procedures, plan sponsors must remain up-to-date with respect to applicable retirement plan limits. Today, October 19, 2017, the IRS announced cost-of-living adjustments affecting 2018 dollar limitations for retirement plans and other retirement-related items.  Please note that the chart below does not include all applicable retirement plan limits, just some of the common ones.

 

401k Plan Limits
2018 2017 2016 2015
Elective Deferrals $18,500 $18,000 $18,000 $18,000
Catch-Up Contributions $6,000 $6,000 $6,000 $6,000
Annual Defined Contribution Limit $55,000 $54,000 $53,000 $53,000
Annual Compensation Limit $275,000 $270,000 $265,000 $265,000
Highly Compensated Employee $120,000 $120,000 $120,000 $120,000
Non-401k Related Limits
Defined Benefit Plans $220,000 $215,000 $210,000 $210,000
403(b)/457 Elective Deferrals $18,500 $18,000 $18,000 $18,000
SIMPLE Employee Deferrals $12,500 $12,500 $12,500 $12,500
SIMPLE Catch-Up Contribution $3,000 $3,000 $3,000 $3,000
SEP Annual Compensation Limit $275,000 $270,000 $265,000 $265,000
Social Security Wage Base $128,700 $127,200 $118,500 $118,000

 

 

 

 

 

 

Copyright © 2017 Hall Benefits Law, All rights reserved.

This newsletter is intended to provide a Firm update to clients and friends. It is intended to be informational and does not constitute legal advice regarding any specific situation. This material may also be considered attorney advertising under rules of certain jurisdictions.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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