Final Tax Cuts and Jobs Act – Little Change to Retirement Plans
January 5, 2018
In the past several weeks, we advised you on the proposed changes to qualified retirement plan requirements in the House version of H.R. 1 - Tax Cuts and Jobs Act (House Bill). (See Qualified Retirement Plans Are Winners under the Tax Cuts and Jobs Act). We also advised you on the proposed changes in the Senate’s version of the bill (Senate Bill), and compare those proposals with those in the House Bill. (See Senate Tax Bill’s Passage Paves the Way for Qualified Retirement Plan Changes). In this article, we advise you on the final bill (Final Bill), which the President signed into law on December 22, 2017.
Approved changes to current law
In the end, the Final Bill has only minor changes in store for qualified retirement plans. The changes will be effective for taxable years beginning after 2017.
• Loan rollovers – The Final Bill extends the rollover deadline for loan offsets due to severance of employment or plan termination. An affected employee will have until the federal due date (including extensions) for filing his or her individual federal income tax return for the tax year in which the plan loan offset occurs to complete the rollover of the qualified plan loan offset amount to an eligible retirement plan. Currently, the loan rollover deadline is 60 days from the date of the loan offset.
• Length of service awards for public safety volunteers – The approved changes will increase the aggregate maximum “length of service” amount from $3,000 to $6,000, with a cost-of-living adjustment in $500 increments based on Code Section 415(d) rules. If the plan is a defined benefit plan, the limit will apply to the actuarial present value of the aggregate amount of length of service awards accruing with respect to any year of service.
Under current law, a plan that pays service awards to bona fide volunteers for “qualified services” is not a deferred compensation program, as long as the aggregate amount of length of service awards accruing with respect to any year of service for any bona fide volunteer does not exceed $3,000.
Proposed provisions that were omitted from the Final Bill
There were many qualified retirement plan features that appeared in the proposed House Bill or Senate Bill but were omitted from the Final Bill. For these retirement plan provisions, current law will continue to apply:
• Hardship distributions
• Minimum age for in-service distributions
• Non-discrimination testing and other relief for “soft frozen” defined benefit plans
• Application of unrelated business income tax (UBIT) to governmental plans
Plan sponsors do not need to do anything now. To the extent that the Internal Revenue Service will require specific plan language regarding the changes to be included in affected retirement plans, it will include those changes in its Required Amendments List, which is issued annually. Plan sponsors are typically given a long lead time in which to adopt the required amendments.
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