With 2018 coming to a close, retirement plan sponsors should make sure they have addressed any required year-end plan amendments, are preparing any required year-end participant notices, and are looking ahead to any changes in 2019 that may impact their plans. This post focuses on the 2019 changes, while Part 1: Closing Out 2018 concentrated on 2018 year-end obligations.
2019 Changes
- Plan Sponsors May Use Forfeitures to Fund QMACs and QNECs: Effective for plan years ending on or after July 20, 2018, the US Department of the Treasury and the Internal Revenue Service issued final regulations under Sections 401(k) and 401(m) of the Internal Revenue Code (Code) amending the definitions of qualified matching contributions (QMACs) and qualified nonelective contributions (QNECs) to provide that QNECs and QMACs need not be fully vested at the time they are made to a plan, only once they are allocated to participants’ accounts. The practical application of this change is that plan sponsors may use forfeitures to fund QMACs and QNECs.
- Plan Sponsors May Expand 401(k) and 403(b) Hardship Provisions: Under the Bipartisan Budget Act of 2018, the hardship rules have been modified to expand the sources from which hardship distributions may be taken and to ease the “safe harbor” standard for meeting an immediate and heavy financial need. Recently issued proposed regulations summarize and expand on the Budget Act provisions, as explained in our recent LawFlash.
- Plan Limits: On November 1, 2018, the IRS released its list of plan limits for 2019:
- The Code Section 402(g) limit on elective deferral contributions increased to $19,000.
- The annual compensation limit under Code Section 401(a)(17) increased to $280,000.
- The Code Section 415 limit for defined benefit plans increased to $225,000.
- The Code Section 415 limit for defined contribution plans increased to $56,000.
- The dollar limit relating to the definition of “key employee” in a top-heavy plan increased to $180,000.
- The limit used in the definition of “highly compensated employee” increased to $125,000.
- The dollar limit applicable to catch-up contributions remains unchanged at $6,000 ($3,000 for SIMPLE plans).
- PBGC Premium Increases
- The per-participant flat-rate premium for plan years beginning in 2019 is $80 for single-employer plans and $29 for multiemployer plans.
- The variable rate premium for plan years beginning in 2019 is $43 per $1,000 of unfunded vested benefits for single-employer plans. The variable rate premium is capped for 2019 at $541 multiplied by the number of participants; plans sponsored by small employers may be subject to a lower cap. (Multiemployer plans do not pay variable rate premiums.)
- Continued PBGC premium increases like these are helping to drive significant “de-risking” activities by pension plan sponsors, such as lump-sum windows and annuity liftouts, which can reduce premiums as well as administrative expenses. Plan sponsors that have not yet done so may wish to consider de-risking in 2019.
If you have any questions about these 2019 changes, please feel free to reach out the authors or your Morgan Lewis contact, and don’t forget to read Part 1: Closing Out 2018 for more on year-end considerations.