Many of us in the retirement plan industry breathed a sigh of relief when we saw that the proposed tax bill, the Tax Cuts and Jobs Act, issued by the House last week didn’t reduce the limit on the amount of pre-tax elective deferrals. The bill leaves the 402(g) limit alone ($18,000 for 2017). However, it does contain a number of proposed changes to retirement plans, including:
- The in-service distribution age for defined benefit and governmental plans would be lowered from 62 to 59 1/2;
- Following a hardship distribution, participants would be prohibited from making elective deferrals for one year (currently 6-months);
- Terminated participants would have until the tax return due date of the year of their termination to repay plan loans without the loans becoming taxable;
- Individuals would no longer be able to recharacterize amounts contributed to a Roth IRA or traditional IRA; and
- New nondiscrimination relief for frozen defined benefit plans as long as employers made an enhanced contribution to a defined contribution plan for new participants.
People may have mixed opinions on whether these changes are positive or negative for plan participants. Regardless, at this time, all of these are just proposals and are a long way from becoming law. We will continue to keep you apprised of potential changes to benefit plans as the Tax Cuts and Jobs Act works its way through Congress.