TBR Newsletter 

Benefits Year End Check List


November 2011 Edition 
 
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Each Year, benefit plan sponsors are responsible for ensuring that their benefit plans comply with various legal requirements. 

This update outlines some of the many responsibilities.  Depending on your specific benefit plans and their plan design, some or all of the following may apply.  In addition, you may want to contact your ERISA attorney as there may be other requirements not outlined here. 
2012 Limits

401(k) Contribution Limits
: $17,000

Catch-Up Contributions: $5,500

Dependent Care - FSA: $5,000

Adoption Assistance: $13,170

Educational Assistance: $5,250

Transportation and Parking: $240 monthly

Please read below for more detailed descriptions.

Transportation and Parking

 

The monthly amount that can be excluded from income for qualified parking expenses is $240. The aggregate monthly limit for transit passes and/or transportation in a commuter highway vehicle (e.g., van pooling) is also $240.  

401(k) QDIA Notice

Does your plan have an automatic enrollment feature?  If yes, you must provide employees with a QDIA notice, (Qualified Default Investment Alternative). This should be provided to newly eligible employees and annually to all employees at the time of or prior to their initial eligibility date or the beginning of the plan year.  For links and additional information visit our website: www.tbrassociates.com 

401(k) Distributions to Terminated Participants with less than $1,000

Keep record-storing costs (per participant charges) to a minimum by paying out terminated participants who have vested account balances of less than $1,000.  Paying participants before a December 31st year end will reduce the number of records you must maintain and may even eliminate the need for a plan audit.  Payout is subject to the terms of the plan.

Taxable Income on Defaulted 401(k) Loans

If your plan currently has loans which are in default, you may wish to notify the participant responsible for the loan that a 1099R will be sent in January unless the appropriate amount of payments are made.  A loan may be in default if a participant has not made at least quarterly scheduled payments on the outstanding plan loan.

Dependent Care - FSA

Sponsors of dependent care assistance plans are required to notify plan participants of the total tax-free benefit they received through the plan during the calendar year by January 31st of the following year.

The total benefit received by an individual must also be reported on the indivudual's W-2 form.  Most plan sponsors use the W-2 form to satisfy the notification.  With some limitations, $5,000 is the maximum tax-free dependent care benefit an individual may receive. 

Dependent care assistance plans must satisfy certain nondiscrimination requirements.  These include the following:
  • Five percent shareholders or owners cannot receive more than 25% of the total plan benefits.
  • Average non-highly compensated benefits must equal at least 55% of average highly compensated benefits. 
HSA and Catch Up Contributions  

Health Savings Accounts (HSAs) are available for individuals who participate in high-deductible health plans (HDHPs).

For  2011 and 2012, the IRS has set the following Annual Contribution limits for single/family:

 

2011: $3,050/$6,150 

2012: $3,100/$6,250 

 

The "catch-up" contribution that can be made by individuals age 55 or older is $1,000.

 

Group Term Life Imputed Income

Internal Revenue Code Section 79 permits an employee to receive up to $50,000 of group term basic life insurance on a tax-free basis.  The value of the amount over $50,000 must be added to the individual's taxable income. 

Plan sponsors should determine the amount of imputed income for group term life plan participants and report this information to the payroll administrator to ensure that the imputed income amount is reported on employees' W-2 forms which are due by January 31st.

Plan sponsors may wish to include the imputed income in the employees' last paychecks of the year as the imputed income is also subject to Social Security taxes.  Including the imputed income in the last paychecks permits the necessary Social Security tax withholding.

  

Employer-paid group term life insurance, in excess of $50,000, generates income that must be included in an employee's W-2 earnings. The imputed income amount will result in an increased taxable gross income.

 
IRS Uniform Premium Table 1 Rates for 2011    

Age                                 IRS Monthly Value Per $1,000 of group                                                term life insurance coverage

 
<25 Years                                 $0.05
 
25 - 29                                     $0.06
 30-34                                       $0.08
 35-39                                       $0.09
 40-44                                       $0.10
 45-49                                       $0.15
 50-54                                       $0.23
 55-59                                       $0.43  
 60-64                                       $0.66
 65-69                                       $1.27
 70 and Over                              $2.06
    

Adoption Tax Credits

 

The maximum amounts that can be excluded from an employee's gross income for qualified adoption assistance expenses, and for expenses related to adoption of a child, are $13,170 per child. 

Domestic Partner Coverage

 

Federal and many state laws do not recognize domestic partners for Section 125 tax purposes unless they qualify as legal dependents or legal spouses.  The "fair market value" of the coverage provided by the health plan to a non-dependent domestic partner, over the amount paid by the employee-participant for such coverage in the income of the participant wages for FICA, FUTA and income tax withholding purposes.

 

Section 125 flexible benefits and spending accounts may not be provided to domestic partners, and employers are not required to offer COBRA to domestic partners.  

Educational Assistance

 

Employer-paid educational assistance is deductible by the employer and excluded from the income and wages of the employee under IRS Section 127.  The maximum exclusion amount is $5,250.   

 

For more information on the above update and to read previous newsletter topics, please visit our website at:
 
http://www.tbrassociates.com/news

or call us at (508) 376-4570 with any questions or concerns.
This update is a publication of TBR Associates, designed to highlight employee benefit matters of interest to our readers.  The information contained in this publication is meant for general educational purposes only.