A series of recent laws and IRS guidelines promise to make 2021 an active year for any employer looking to offer their employees a competitive range of benefits. My list of the “Top 5” benefits that an employer should introduce or improve in 2021, to improve retention and / or recruitment, is presented below:
- Repayment of a student loan by the employer as part of an educational assistance program.
If there’s one demand millennials and young workers repeatedly make of their employers, it’s this: help us pay off our college or graduate student loan debt! Under the Coronavirus Aid, Relief, and Economic Securities Act of 2020 (known as the CARES Act), as amended by the Consolidated Appropriations Act of 2021 (the “CAAâ), An employer may pay up to $ 5,250 per year for an employee’s eligible graduate education expenses. These payments are excluded from the employee’s salary for federal income tax and FICA (Social Security and Medicare) purposes. This before tax The student loan repayment program runs until December 31, 2025.
An employer who wishes to offer this benefit must establish a written âeducational assistance programâ. Jackson Lewis’s Employee Benefits Practice Group can help an employer prepare such a document. Think of it as a “handbook” for educational assistance, just shorter, generally limited to the provisions required by the IRS!
- Employee repayment of student loan under 529 plan.
Many parents use a 529 plan to save for their children’s college education. While contributions are made after-tax, income is distributed tax-free to the extent that principal and income are used to pay for eligible college expenses, such as tuition, room and board, and books.
The 2019 law on the establishment of each community for the improvement of retirement (the “SECURE Act“) amended Section 529 of the Internal Revenue Code to allow a person to use up to $ 10,000 to make qualified student loan repayments tax-free. The limit of $ 10,000 is a global lifetime limit.
An employer might make this option available to their employees through payroll deduction and might even consider âmatchingâ employee contributions used to repay student loans. And if the match is made within the framework of an educational assistance program (see 1, above), the first $ 5,250 in employer contributions will be tax-free for the employee!
- Deferral of Flexible Expenditure Account for Health and Dependent Care (âFSAâ) amounts from 2020 and 2021 to 2021 and 2022, respectively.
The health and dependent care FSAs generally have a “use it or lose it” rule under which the amounts remaining in the account at the end of the plan year (plus any grace period, which must be limited to 2 and a half months after the end of the year plan) are lost. CAA Amends Internal Revenue Code To Offer Employer Option To Add Deferral Provision Where extension of the grace period for the expenses to be incurred. Under the deferral provision, an employer may allow participants to carry over unused funds from 2020 to 2021 and 2021 to 2022. Under the grace period provision, for a calendar year plan, the period of 2020 grace period can be extended from March 15, 2021, to December 31, 2021, and the 2021 grace period can be extended from March 15, 2022 to December 31, 2022.
The benefit of either approach for employees in the COVID age is obvious: Employees have more time to use their contributions, a significant benefit for employees who incur costs related to COVID. and employees whose children were unable to attend daycare due to the pandemic.
- Set up a 401 (k) plan and get a tax credit for doing it.
Employees expect their employers to provide them with a retirement benefit. The âmarketâ retirement benefit is a 401 (k) plan.
Prior to the SECURE Act, a small business could qualify for a federal tax credit as part of establishing a 401 (k) plan. The credit was the lesser of (1) 50% of âeligible start-up costsâ or (2) $ 500.
Under the SECURE Act, a small business can qualify for a tax credit for establishing a new 401 (k) plan or adding an automatic enrollment provision to an existing 401k plan or new. In the case of the establishment of a new plan, the tax credit is equal to the greater of (1) $ 500 or (2) the lesser of (A) $ 250 multiplied by the number of employees not highly paid (for 2021, those earning no more than $ 130,000 in 2020) or (B) $ 5,000. In the case of adding an automatic registration option, the tax credit is equal to $ 500. These credits are available for up to three years, which means an employer can qualify for $ 5,500 for each of the first three years, for a total of $ 16,500.
- Penalty-free 401 (k) plan withdrawals to pay for the birth or adoption of a child.
The SECURE Act allows an employer to modify their qualifying defined contribution pension plan, such as their 401 (k) plan, to allow an employee to withdraw up to $ 5,000 to pay for expenses incurred as part of the plan. birth or adoption of a child without triggering the 10% tax on withdrawals before the age of 59 and a half. For the exemption to apply, the withdrawal must occur within one year of the birth or adoption.
IRS guidelines state that the limit of $ 5,000 applies to each child born or adopted. For example, if an employee or their spouse has twins, the limit is $ 10,000.
To make this benefit available to its employees, an employer would have to modify their pension plan accordingly. The deadline for a calendar year plan is December 31, 2022. Most employers can obtain a copy of a form amendment from their plan providers.