COLA—or Ginger Ale? 2023 Retirement Plan Limits Announced

 COLA—or Ginger Ale?  2023 Retirement Plan Limits Announced

With IRS announcing the 2023 cost-of-living-adjusted limits that apply to qualified plans, see Notice 2022-55, notably the elective deferral limit rising by 10% (to $22,500), now is a good time for 401(k) plan sponsors to remind participants not only of the new limits, but also the importance both of saving for their retirement and how the limits will affect them. Plans that offer “true-up” provisions (i.e., a provision allowing employees who didn’t get the maximum employer matching contribution due to decreased savings earlier in the year, to increase their plan contributions now to gain lost employer match), can be reminded of that plan provision. It’s also time to provide annual qualified default investment alternative (QDIA) reminders, maybe also reminding employees about any auto-enrollment and auto-escalate features in their savings plans.

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Related Content

• Cost of Living Adjustments Chart for Employee Benefit Plans
  See how the 401(k) elective deferral limit rose from $20,500 in 2022 to $22,500 in 2023 and catch-up contributions rose from $6,500 to $7,500, allowing total employee contributions for eligible employees aged 50 and above (subject to other limits that may apply) to be as high as $30,000 a year.
• True-up Clause for 401(k) Plan (Matching Contributions)
  Learn how employees can be provided an opportunity to maximize their employer match by including a true-up provision in the plan. Many 401(k) plans allocate employee plan contributions and employer matching contributions on a per-paycheck formula. Eligible plan participants who experience a change in pay or who saved below the maximum match can benefit from this true-up provision.
• QDIA Notice
  Remember that plans having a default investment (like target date funds) must provide a QDIA notice to participants (i.e., notice that the plan implements a qualified default investment alternative under 29 C.F.R. § 2550.404c-5(c)(ii)) within a reasonable period of at least 30 days before the new plan year. Now is the time that administrators should be planning this and other end-of-year notifications.
• Defined Contribution Plan Notices (Periodic Notices)
  Reference this practice note that identifies other notices that defined contribution retirement plan administrators must provide to participants on a periodic basis, for instance, at or near year end.

Legal Developments

• Retirement Plan Sponsors Have Short 2022 Year-End Amendment List
  With IRS Notices 2022-33 and 2022-45 recently extending several plan amendment deadlines, retirement plan sponsors now have few (if any) plan amendments to adopt before 2022 draws to a close.
• Boston Hospital Inks $2.9M ERISA Deal With Workers
  In a 403(b) plan suit on an excessive fees claim, Boston's Beth Israel Deaconess Medical Center has agreed to pay $2.9 million to settle claims it mishandled employees' retirement plans.
• DOL Proposal May Disrupt Plan Sponsor Investment Arrangements
  DOL recently proposed significant changes to the qualified professional asset manager (QPAM) prohibited transaction exemption widely used by asset managers for nearly four decades.

Practical Guidance Updates
Featuring the latest updates from your Practical Guidance account.  

• Employee Benefits & Executive Compensation Key Legal Developments Tracker
  Stay informed on new developments.
  • Retirement Plans. PGGC proposes revisions to withdrawal liability rule for multiemployer plans that would allow a plan actuary to choose from a range of interest rate assumptions in calculating an employer’s withdrawal liability. The proposed rule would increase withdrawal liability obligations of employers from $804 million to $2.98 billion over the next 20 years. 87 Fed. Reg. 62,316 (Oct. 14, 2022).
  • Health and Welfare Plans. IRS provides guidance that allows a cafeteria plan participant to revoke or modify, during a period of coverage, an election under a group health plan for family coverage (other than in a health FSA), so one or more family members can enroll in a qualified health plan (QHP) through an ACA health insurance exchange. Notice 2022-41; 87 Fed. Reg. 61,979 (Oct. 13, 2022).
  • Health and Welfare Plans. IRS announces certain tax inflation adjustments for tax year 2023 that apply to welfare and fringe benefit plans. For example, the monthly limitation for the qualified transportation fringe benefit and for qualified parking increases to $300; the dollar limitation for employee salary reductions for contributions to health FSAs increases to $3,050; and the maximum carryover of unused amounts in a health FSA increases to $610. Rev. Proc. 2022-38.
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• The Practical Guidance Journal Fall Edition features impacts of the Dobbs v. Jackson Health Organization decision on employers, healthcare, insurance, and privacy concerns, and tracks the status of state law changes.
• New and Updated Practical Guidance Content
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  • Equity Incentive Compensation Plans for Start-Ups
  • EPCRS: An Introduction to Retirement Plan Corrections Video
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  • Investment Review Checklist for Investment Committee (401(k) Plan)
  • Open Enrollment Notices Checklist (Health and Welfare Plans)

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