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2016 Qualified Plan Limits

2016 Qualified Plan Limits

October 27, 2015

Authored by: Julie Wagner and Lisa Van Fleet

They’re here—the 2016 IRS plan limitations-but they’re not new. Because the change in the cost-of-living index doesn’t trigger an adjustment, the qualified plan limits identified here do not change in 2016. See the chart below to see the 2016 limits as well as a summary of the limits over the preceding three years. Note that certain other limitations do change for 2016 (e.g. certain IRA limits), but not the qualified plan limits reported here.

Type of Limitation 2016 2015 2014 2013 Elective Deferrals (401(k), 403(b), 457(b)(2) and 457(c)(1)) $18,000 $18,000 $17,500 $17,500 Section 414(v) Catch-Up Deferrals to 401(k), 403(b), 457(b), or SARSEP Plans (457(b)(3) and 402(g) provide separate catch-up rules to be considered as appropriate) $6,000 $6,000 $5,500 $5,500 SIMPLE 401(k) or regular SIMPLE plans, Catch-Up Deferrals $3,000 $3,000 $2,500 $2,500 415 limit for Defined Benefit Plans $210,000 $210,000 $210,000 $205,000 415 limit for Defined Contribution Plans $53,000 $53,000 $52,000 $51,000 Annual Compensation Limit $265,000 $265,000 $260,000 $255,000 Annual Compensation Limit for Grandfathered Participants in Governmental Plans Which Followed 401(a)(17) Limits (With Indexing) on July 1, 1993 $395,000 $395,000 $385,000 $380,000 Highly Compensated Employee 414(q)(1)(B) $120,000 $120,000 $115,000 $115,000 Key employee in top heavy plan (officer) $170,000 $170,000 $170,000 $165,000 SIMPLE Salary Deferral $12,500 $12,500 $12,000 $12,000 Tax Credit ESOP Maximum balance $1,070,000 $1,070,000 $1,050,000 $1,035,000 Amount for Lengthening of 5-Year ESOP Period $210,000 $210,000 $210,000 $205,000 Taxable Wage Base $118,500 $118,500 $117,000 $113,700 FICA Tax for employees and employers 7.65% 7.65% 7.65% 7.65% Social Security Tax for employees 6.2%

A Small PACE in the Right Direction

Overview. On October 8, 2015, President Obama signed the Protecting Affordable Coverage for Employees Act (“PACE”). As originally enacted, the Affordable Care Act (“ACA”) included a provision which, beginning in 2016, would have expanded the universe of employers considered “small employers” to include those employers with 51 to 100 employees. PACE eliminates this provision and instead leaves each state with the option of defining a small employer as an employer with up to 100 employees. As a result, the existing ACA definition of “small employer”, which currently includes only groups with 50 or fewer employees, will remain in effect after 2015, except in those states that choose to expand the definition.

Staying in the large group market is significant for employers with 51-100 employees because several ACA requirements apply in the small group market that do not apply in the large group market. These small group requirements would have increased premiums and caused administrative issues for most employers with 51-100 employees. The three most significant differences between small group insured plans and large group insured plans are as follows:

  1. Small group insured plans must cover ten essential health benefits (e.g., pediatric dental care, mental health and substance use disorder services, behavioral health treatment).
  2. A small group insured plan must meet specified actuarial values, while a large group insured plan can provide any actuarial value as long as the plan meets the 60% minimum value requirement.
  3. As more fully described below, small group insured plans are

If At First You Don’t Have SSNs For Your ACA Returns, Ask, Ask Again

As employers and other coverage providers are already aware, the Internal Revenue Service (“IRS”) will require that certain information be reported regarding the coverage employers offer or the coverage that is provided to individuals starting in early 2016. The applicable forms generally require a Social Security number or other taxpayer identification number (collectively, “TIN”). But what happens if the individual does not provide his or her TIN?

Generally, if filers submit incomplete or incorrect information reporting, penalties will be imposed. Under Code Section 6721, the IRS can impose a penalty of up to $250 per incomplete or incorrect return which is capped at $3,000,000 a year. If a filer cannot secure the individual’s TIN, IRS regulations allow the penalty to be waived if the failure is due to reasonable cause, meaning there are significant mitigating factors or impediments, and the filer acted in a responsible manner.

A significant mitigating factor could be, for example, the filer’s established history of compliance (if information has been incorrect or incomplete in the past, a consistently lessened rate of error is helpful). Impediments are events beyond the filer’s control; for instance, the failure of the individual to provide the necessary TIN.

However, to take advantage of this, employers and coverage providers must show that they acted in a responsible manner. This includes taking significant steps to mitigate the failure, requesting appropriate extensions of time to file, etc. Specifically with respect to TINs, however, if the filer claims the individual’s failure to provide

Termination of a Nonqualified Retirement Plan with a Traditional Defined Benefit Formula

A recent case from a federal court in the Northern District of Georgia provides an interesting perspective on the termination of a nonqualified retirement plan with a traditional defined benefit formula offering lifetime annuity payments. In Taylor v. NCR Corporation et. al., NCR elected to terminate such a nonqualified retirement plan. The termination decision not only precluded new entrants to the plan and the cessation of benefit accruals for active employees, but it also affected retirees in payout status receiving lifetime payments. Those retirees received lump sum payments discounted to present value in lieu of the lifetime payments then being paid to them.

At the time NCR terminated the plan, its provisions apparently provided that the plan could be terminated at any time provided that “no such action shall adversely affect any Participant’s, former Participant’s or Spouse’s accrued benefits prior to such action under the Plan. . . ” The plaintiff was a retiree receiving a lifetime joint and survivor annuity of approximately $29,000 annually. As a result of the plan’s termination, NCR calculated a lump sum benefit for the plaintiff of approximately $441,000, with the plaintiff ultimately receiving a net payment of approximately $254,000 after federal and state income tax withholdings.

The key allegations made by the plaintiff, as recited by the court, were (1) that the lump sum payment caused the plaintiff to incur a significant taxable event and (2) that the plaintiff objected to the use of a discount factor to reduce the value of the lump

The Long Arm of the ACA Nondiscrimination Rules

Last month, the U.S. Department of Health and Human Services (“HHS”) issued a proposed rule implementing section 1557 of the Affordable Care Act (“ACA”), which essentially prohibits discrimination on the basis of race, color, national origin, sex, age or disability in certain health programs and activities. While the rule does not apply directly to most employer-sponsored plans, it may potentially apply indirectly.

Covered Entities

Under the proposed rule the nondiscrimination requirements would apply to:

  • all health programs or activities of a covered entity if any part receives Federal financial assistance administered by HHS (including subsidies provided by the Federal government to individuals through the Marketplace for remittance to the covered entity);
  • all health programs or activities administered by HHS, including the Federally-facilitated Marketplace; and
  • all health programs or activities administered by any entity established until Title I of the ACA, including a state-based Marketplace.

A health program or activity includes:

  • the provision or administration of health-related services or health-related insurance coverage;
  • the provision of assistance in obtaining health-related services or health-related insurance coverage; and
  • all of the operations of an entity principally engaged in providing or administering health services or health insurance coverage.

Impact on Employer-Sponsored Group Health Plans

Since the proposed rule would extend to all the operations of a covered entity, it appears that a health insurance issuer participating in the Marketplace would be required to comply with the nondiscrimination provisions with respect to (1) its own employer-sponsored group health

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