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December 2017  Volume 15, Number 12        

health benefits

Changes to 401(k) Plans Under Consideration

Congress is debating possible changes to the 401(k) retirement plans employers offer their employees. Some of the ideas being discussed by Senators and Representatives would favor employees, some would benefit the federal government.

Retirement plans are a hot topic for two important reasons, both of which involve money.

Americans are not good at saving for retirement. According to the National Institute on Retirement Security, six out of 10 households do not save enough to maintain their current standard of living in retirement. In addition, Social Security does not have enough money to support future generations’ retirement needs. More workers will be using the Social Security funds than are putting money into the plan. Congress also frequently has dipped into the fund to pay for other projects and services.

The other reason is that Congress is looking for ways to raise revenue to offset historic tax cuts promised by President Donald Trump. Employees currently can contribute up to $18,000 a year and not pay taxes on those earnings. Employees who are age 50 and older are allowed to save as much as $24,000 a year to “catch up” on their retirement savings.

Even though retirees eventually pay taxes on the savings, the federal government would like to collect those taxes now rather than later. Thus, Republicans have floated the idea of limiting the amount of tax-free money workers can save for retirement to $2,400 annually. This change could raise billions over the next 10 years.

However, President Trump told reporters, and wrote on Twitter, that he was not in favor of this change and that he wanted to preserve existing retirement tax breaks, which he believes are very important to the middle class.

Congress is also looking at proposals that would make it easier for employees to save. Most of the ideas revolve around 401(k) retirement plans. Here are a few ideas that could have a positive effect for you and your employees.


Some employers automatically enroll their employees into their company’s 401(k) plan. Employees can opt out, but most stay in the plan and don’t miss the money that’s taken out.

Proponents of auto-enrollment want Congress to require employers to direct six percent of every employee’s salary to a 401(k) plan. Employees could elect to have more taken out. Another proposed automatic enrollment feature is a requirement to automatically increase contributions by one percent each year to a maximum of 12 percent.

Qualified Default Investment Alternatives

Investment choices often overwhelm employees and they would prefer someone else to make the decisions. Many employers automatically enroll employees in Qualified Default Investment Alternatives (QDIA). What makes these plans special is that they mix equity and fixed income investments based on an individual’s age and retirement date. Proponents of these plans want Congress to require QDIAs.

Roth 401(k) Contribution

Unlike a 401(k) contribution, any money deposited in a Roth 401(k) is taxed immediately. The current limits are $5,500, but go up to $6,500 for those who are age 50 and older. If the contribution limits were raised, in the short term there would be increased tax revenue from Roth contributions. However, the Roth 401(k)s would shelter eligible fund withdrawals or capital gains from taxation in the future. There is a push to increase limits to both 401(k) and Roth 401(k) plans. Proposed limits for 401(k) pre-tax contributions are $20,000, plus a maximum of $20,000 in Roth 401(k) contributions, which would be taxed right away, helping to ease federal budget concerns.

Health Savings Accounts

A Health Savings Account (HSA) is set up by an employer and is a great way for individuals to save tax free for health expenses. The higher the contribution limits, the more employees could potentially save for use during retirement. Currently, contribution limits are $3,400 for self-only coverage, and $6,750 for individuals with family coverage. Those who are 50 and older can add an additional $1,000 annually for catch up contributions.


Employees often are tempted to take loans from their 401(k) plans. They have to pay the loans back, but if they leave their job during the loan payback period, they often don’t pay the money back. Many human resource departments spend a lot of time keeping track of loan repayments. There’s a proposal to eliminate the ability for employees to take out loans, except for hardship reasons.

Company Stock

Companies can offer company stock as part of a retirement plan, but employees often put too much money in company stock and don’t understand when they should pull back. Some experts would like to see companies eliminate company stock as an option or restrict its use.

For more information on 401(k) plan administration or setup, please contact us.

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In this issue:

This Just In...

Changes to 401(k) Plans Under Consideration

Vision Insurance Trends to Incorporate in Your Benefit Plans

Proposed Changes to Group Health Insurance for Small Employers

Getting the Most Out of Disability Benefits



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