Year-End Tax Bill Modestly Expands Tuition and Retirement Benefits

House and Senate face year-end deadline to pass measure

Stephen Miller, CEBS By Stephen Miller, CEBS December 12, 2018

Update: Onward to 2019

Congress adjourned near the end of December 2018 without passing end-of-year retirement or other employee benefits legislation. These measures are expected to be reintroduced in the 116th Congress in 2019.

On Dec. 10, House Ways and Means Committee Chairman Rep. Kevin Brady, R-Texas, introduced a retooled tax-relief package that would further delay the Affordable Care Act (ACA) "Cadillac tax," ease some regulations on retirement savings plans and expand the use of tax-exempt tuition benefits, although not as broadly as employer groups wanted.

The Retirement Savings and Other Tax Relief Act of 2018 "helps workers save more and earlier for retirement and for their children's education," Brady stated.

The legislation recycles some of the employee benefit changes from the House-passed Family Savings Act, which the Senate failed to consider. Some of the 401(k) provisions also are mirrored in the Retirement Savings Enhancement Act now before the Senate.

The House of Representatives is expected to consider the package as early as this week. However, its prospects in the Senate remain unclear. In order to pass in the Senate and be signed into law by President Donald Trump, any tax provisions would need bipartisan support, which is why more-sweeping changes were excluded from the stripped-down package.

If enacted, the law would:

  • Delay the excise tax on high-value employer health plans—the Cadillac tax—by one additional year, to 2023. The law would also delay the ACA's health insurance tax, which insurers would pay, by two more years, until 2021; the medical device tax on device makers by five years, until 2024; and fully repeal a tax on tanning salons.
  • Let Section 529 education accounts pay for apprenticeship fees to learn a trade, cover the cost of home schooling and help pay off student debt. Employees contribute pretax money to Section 529 plans, often through direct payroll deposits. The provision "should increase employees' interest in using 529 plans when employers offer them," said Terry Dunne, senior vice president and managing director of retirements services at Millennium Trust Co.
  • Allow families to access their 401(k) and similar accounts to pay expenses related to a new child, whether through birth or adoption, with the ability to replenish those accounts in the future without penalties.
  • Allow small employers in different industries to partner in a common 401(k) multiple-employer plan (MEP) that would be less expensive and burdensome to administer than a single-employer plan. The measure would go further than recently proposed Department of Labor rules by protecting employers in a shared plan from Employee Retirement Income Security Act liability created by a single noncompliant employer, in accordance with the "one bad apple" rule.

[SHRM members-only toolkit: Designing and Administering Defined Contribution Retirement Plans]

SHRM-Backed Provisions

The Society for Human Resource Management (SHRM) has long advocated for full repeal of the Cadillac tax. While the latest proposal doesn't fully repeal the tax, SHRM welcomes an additional delay of the tax until 2023.

"Looking ahead, the Cadillac tax must be dealt with well in advance of implementation time, otherwise employees could see further changes in their benefit options," said Chatrane Birbal, SHRM's director of policy engagement.

Disappointing many, the bill does not expand Section 127 of the tax code to allow employers to provide tax-free student loan repayment assistance to their employees. Currently, Section 127 allows employees to exclude from their taxable income up to $5,250 per year in employer-provided educational assistance for tuition, student fees, books, supplies and equipment.

"In keeping with SHRM's advocacy to create better workplaces and a better world, we support the federal expansion of Section 127 of the Internal Revenue Code to enable employers to use pretax dollars to pay for student loan assistance just as they do for tuition reimbursement," Johnny C. Taylor, Jr., SHRM-SCP, president and chief executive officer of SHRM, wrote on the SHRM Blog.

"Not only can expanding employer education assistance address the skills gap, it is a good investment in America's workforce," Taylor continued. "In a future where most employers are able to help their workers defray student debt, more individuals will have the confidence to pursue or complete higher education and be prepared to fill high-demand fields in the years and decades to come."

Regarding 401(k) plans, the bill could "provide small employers the ability to offer retirement savings benefits to their employees" by eliminating barriers that restrict the types of employers permitted to band together through a MEP, Birbal said.


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