Jennifer S. Kiesewetter, Esq.

How Will the New Tax Plan Impact Employee Benefits?

On December 22, 2017, the new tax bill was signed into law. The bill itself went through several proposals in the House and Senate before reaching the Oval Office, including many provisions addressing employee benefits. Now that the bill is law, how will the new tax plan impact employee benefits?

Here are answers to three questions employers might have about the new tax plan’s impact on their benefits offerings.

How Are Employee Benefits Affected by the New Tax Plan?

Although sweeping retirement plan legislation did not make it into the final bill, many changes in the new tax plan do affect employee benefits. The most significant changes impact 401(k) loans and fringe benefits. Regarding 401(k) loans, under the previous law, if a plan were to terminate or a participant was to end employment, any outstanding 401(k) loans would be due and payable at the termination event, according to law firm Holland and Hart. If the loan were not repaid in a timely fashion, the participant’s account would be offset by the loan amount due. A participant could elect to roll the loan over to another qualified plan or IRA, if permissible under plan terms, within 60 days of the offset.

Beginning in 2018, however, a participant may have until their due date for tax filing, including extensions, to make such a rollover, in contrast to the 60-day requirement.

Additionally, many fringe benefits have been impacted. While most fringe benefits have been deductible by the employer, the new tax law repeals several of these deductions, including for:

  • Qualified transportation fringe benefits (such as parking passes)
  • Entertainment and recreation benefits
  • Meals, food and beverages provided to employees (partially repealed)
  • Moving expense reimbursement benefits

Most of these fringe benefits changes take effect in 2018, according to Holland and Hart.

Does the New Tax Plan Impact Employer-Provided Health Care Plans?

The new tax bill does repeal the Affordable Care Act’s individual mandate. Although this does not directly impact employer-provided group health care plans, the effect of the repeal can potentially put financial pressure on group plans. For those uninsured who find themselves in catastrophic situations, medical costs are passed along to customers and health insurers, as the Huffington Post reports. This financial pressure could eventually put pressure on the group market through rising costs or additional participation.

How Should Employers Educate and Inform Employees About These Changes?

Employers should examine these tax law amendments and determine which of the employee benefits they offer are impacted. Many plan documents will need to be amended and revised to incorporate these new changes. Employers will need to determine whether they will distribute new summary plan descriptions or a summary of material modifications to their employees as required notices.

Additionally, as Forbes notes, employers should keep all employee benefits information in one location, preferably on a user-friendly website, and should use multiple channels of communication, such as email, regular mail, videos and in-person meetings.

When Does a New Health Care Law Affect Small Businesses? Read article

The turnaround on compliance with these amendments is short. Employers will need to determine which documents need to be amended, which notices to send out, which communication tools to use with employees and which internal procedures — such as manuals, forms and payroll entry — need to be adapted to the new law. Any change to employee benefit plans requires a compliance strategy — and with 2018 already underway, employers should be testing and adapting their strategies now.

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This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.