Friday, August 9, 2024

Code § 409A Nonqualified Deferred Compensation Rules Revisited 





An article titled "Code § 409A Nonqualified Deferred Compensation Rules Revisited" by Charles C. Shulman, Esq., was published in the Journal of Deferred Compensation (Wolters Kluwer) in two parts in the Spring 2024 and Summer 2024 issues. I have reproduced both parts of "Code § 409A Nonqualified Deferred Compensation Rules Revisited" at https://ebeclaw.com/wp-content/uploads/2024/08/409A-Outline-Current-ccs.pdf 

Code § 409A, enacted in 2004 imposes strict rules on nonqualified deferred compensation arrangements. The IRS issued final § 409A regulations in 2007 and further proposed § 409A regulations in 2016 and other guidance and rulings from time to time. There have been a number of cases regarding § 409A. The substantial rules and issues relating to the above are basically all discussed in the article.

Part I of the article discusses primarily which plans are subject to Code § 409A, § 409A election, distribution, and other restrictions, application to severance arrangements and employment agreements and related issues. Part II of the article discusses primarily the application of IRC § 409A to equity awards, SERPs and bonus plans, 20% tax, corrections for failures, foreign trust and related matters.

Both parts of the article can be accessed at https://ebeclaw.com/wp-content/uploads/2024/08/409A-Outline-Current-ccs.pdf

Below is the table of contents:
Code § 409A Nonqualified Deferred Compensation Rules Revisited
https://ebeclaw.com/wp-content/uploads/2024/08/409A-Outline-Current-ccs.pdf
Table of Contents
PART I OF ARTICLE

A.        Which Plans are Subject to § 409A
            Restrictions on Deferred Compensation
            Definition of NQDC Plan
            Definition of Plan        
            Exception for Qualified Plans
            Exception for Certain Welfare Plan Benefits
            Exception for § 457(b) Eligible Plans but Not for § 457(f) Ineligible Plans
            Exceptions for Amounts Immediately Taxable & Nontaxable Medical Arrangements
            Exception for Qualified Equity Grant Deferrals under § 83(i)
            Application to Employees and Other Service Providers
            Exception for Foreign Arrangements
            Plan Aggregation and Types of Plans
            Deferral of Compensation to Which Service Provider has a Legally Binding Right
            Not Applicable to Discretionary Plans
            2 ½-Month Short-Term Deferral Exception
            Recurring Part-Year Compensation Such as School Teachers' Compensation
            Substantial Risk of Forfeiture
            Section 457A – Taxation of Deferred Compensation of Nonqualified Entities
B.         Section 409A Election, Distribution and Other Restrictions
            Initial Election – Prior to Year Services Performed or Within 30 Days of Becoming Eligible
            13-Month Rule
            Elections for Recurring Part Year Compensation
            Performance-Based Compensation Elections Six Months Prior to End of Period
            Subsequent Elections – 12-Month Delay and Five-Year Deferral
           Separate Payments regarding Subsequent Changes in Time or Form of Payment
           Stacking          
            When Payment is made for Purposes of § 409A
            Multiple Payment Events
            Different Life Annuities Treated as Single Form of Payment
            Permissible Distribution Events
            Permissible Distribution Event – (i) Specified Date or Fixed Schedule
            Permissible Distribution Event – (ii) Separation from Service
            Permissible Distribution Event – (iii) Disability
            Permissible Distribution Event – (iv) Death
            Permissible Distribution Event – (v) Change in Control
            Permissible Distribution Event – (vi) Severe Financial Hardship
            Anti-Toggling Restriction – Single Payment Form Required for Each Payment Event…
            Designated Payment Dates Within One Calendar Year, 90 Day Payment Period, etc.
            6-Month Waiting Period after Separation from Service for Specified Employees (Top 50) of
Public Companies
            Multiple Buckets of Deferrals with Different Payout Years
            Expense Reimbursements Within the Year Following the Year of the Expense, In-Kind Benefits
            Medical Reimbursements and § 105(h)
            Tax Gross-Ups
            Delay in Payment by Employee to Comply with Other Laws
            Disputed Payments and Refusals to Pay
            Written Plan Requirement
            Plan Amendments
            Prohibition on Acceleration of Payment
            Acceleration of Vesting Permitted by Regulations
            Acceleration of Payments Permitted for Domestic Relations Order, for De Minimis Payments of
Entire Interest, for Unforeseeable Emergencies, Etc.
            Acceleration Permitted on Plan Termination following a Change in Control, in Bankruptcy or
Where All Such Plans are Terminated
            Certain Offsets Permitted
            Substitutions Replacing Arrangements Subject to § 409A and Forfeitures
            Back-to-Back Deferred Compensation Arrangements (e.g., for Hedge Fund Managers)
            Savings Clauses Disregarded
            Typical Boilerplate Provisions Regarding § 409A
C.         Application to Severance Arrangements and Employment Agreements
            Severance Plans at Discretion of Employer Excluded Since There is No Legally Binding Right
            Exception if Payout on Involuntary Termination or Within 2 ½ Months After Year of Termination
            Test for When Quit for Good Reason is Considered Involuntary Separation
            Safe Harbor Good Reason
            Severance Conditioned on Executing Release of Claims
            Treatment of Involuntary Severance Plan as a Separate Plan
            Exception for Involuntary Severance or Early Retirement Program if Separation Pay Does Not
Exceed 2 x Lesser of Pay or § 401(a)(17) Amount and Paid by Second Year Following Separation
            Exception from § 409A for Reimbursement for Expenses, In-Kind Benefits and other Fringe Benefits
            following Termination of Employment
            Limited Payment Small-Sum Cashout Exception
            Stacking of Exemptions
            Indemnification and Legal Settlements
            Consequences of Applicability of § 409A to Severance Arrangements
            Clawback Recovery Issues under Code § 409A
            Employment Agreement Provisions Regarding § 409A
PART II OF ARTICLE
D.        Options, SARs, Restricted Stock, RSUs and Partnership Interests
            Non-Applicability of § 409A to Fair-Market-Value Options and SARs Without Deferral Feature
            Service Recipient Stock or Stock of an Affiliate
            Includes Certain Prospective Employees
            Repurchases for Less than Fair Market Value
            Determination of Fair Market Value
            Dividend Equivalents for Options or SARs
            Exemption for ISOs and 423 Options
            Modification by Reduction in Exercise Price Treated as New Option
            Extension Allowed Only if Not Extended Beyond Earlier of Original Term or 10 Years from Grant
            Consequences of Stock Options or SARs Being Subject to § 409A
            Potential Solution Where Options or SARs are Subject to § 409A
            Restricted Stock Not Subject to § 409A
            RSUs Subject to § 409A if Shares Not Delivered at (or Within Short-Term Period After) Vesting
            Consequences of RSUs Being Subject to § 409A
            Partnership Interests
E.         Application to SERPs
            Changes in SERP Benefits Resulting from Changes in Qualified Plan Benefits Permissible
            Changes in 401(k) Elections Affecting SERPs
            More About Deferral Elections and SERPs
            Cannot Use Qualified Plan Forms of Distribution for SERP
            Distribution Forms Under SERP
F.         Application to Bonus Plans
            Discretionary Bonus Plans vs. Legally Binding Bonus Plans
            Short-Term Deferrals or Employment on Last Day of Year Requirement
            Bonuses Payable upon Quitting for Good Reasons
            Consequences of a Bonus Plan Becoming Subject to § 409A
G.        Immediate Taxation, Additional 20% Tax & Interest; Information Reporting
            Immediate Taxation, 20% Additional Tax, and Interest on Underpayment
            Tax on Amounts Deferred in Prior Years
            Additional State Tax
            Medicare Not Applicable to § 409A
            Amounts Includible in Income and Additional 20% Tax; Anti-Abuse Rules; Taxed Only for Years
of Failure; Opportunity to Correct Prior to Year of Vesting, Etc.
            Information Reporting and Withholding for Deferred Compensation Plans Under §409A
            Currently No Withholding Obligation for 20% Additional Tax or Premium Tax
            No Ruling Position
            Indemnification for § 409A Violations
H.        Correction For § 409A Operational and Documentary Failures
            IRS Audits
            Notice 2008-113 – Operational Failure Corrections
            Correcting Documentary Errors Prior to Year of Vesting
            Notice 2010-6 – Voluntary Corrections for § 409A Documentary Failures
I.          Grandfather Rule and Material Modifications
            General Grandfather Rule – Earned and Vested by 12/31/2004
            Lose Grandfathering if Material Modification After 10/3/2004
            Q&A 19(c) Elections and Grandfathering
            Grandfathered Discounted Stock Options and SARs and Modification
            When to Maintain Grandfathering
            Change in Payment Elections or Conditions by 12/31/2008
            Transition Relief for Linked Plan Elections by 12/31/2008
            Substitutions of Discounted Options with Non-discounted Options Prior to 2009
J.          Restrictions on Foreign or Springing Rabbi Trusts
            Offshore Rabbi Trusts
            Financial Health Triggers
            Income Inclusion for Offshore Trusts and Financial Health Triggers
            Effective Date
           Restriction on Funding if Severely Underfunded or Terminating Defined Benefit Plan

https://ebeclaw.com/wp-content/uploads/2024/08/409A-Outline-Current-ccs.pdf 

Monday, June 24, 2024

Court Stay on Enforcement of FTC Noncompete Ban and Other Noncompete Developments



CHARLES C. SHULMAN, ESQ.
cshulman@ebeclaw.com
cshulman@yahoo.com 
www.ebeclaw.com (blog)
212-380-3834 / 201-357-0577

Court Stay on Enforcement of FTC Noncompete Ban 
and Other Noncompete Developments

 The Federal Trade Commission on May 7, 2024 published a ban on all noncompete clauses as an unfair method of competition, effective September 4, 2024 (with the exception of grandfathered agreements in effect on Sept. 4, 2024, which can continue to be enforced for senior executives, i.e., earning over $151,164 and in a policy-making position). The Federal Northern District Court in Texas,, in Ryan LLC v. Federal Trade Commission, imposed a stay and preliminary injunction against enforcement of the FTC ban, pending a final decision. State laws in 14 states have recently banned some or all types of noncompete provisions, and the state laws are not subject to the Federal District Court stay. Also, noncompete provisions, even prior to FTC and state legislation, were subject to restrictions by case-law.

 

 

I.    FTC Noncompete Clause Ban and Court Stay on Enforcement

 

A.     Final FTC Rules Banning Practically All Noncompete Provisions – Effective Sept. 4, 2024 – On May 7, 2024, the Federal Trade Commission (FTC) published a new rule in final form, banning all noncompete clauses as an unfair method of competition, and therefore violating Section 5 of the FTC Act.[1]  Prior to the stay on enforcement of the FTC ban from the district court in Texas, the effective date of the new noncompete ban was to be 120 days after publication, i.e., September 4, 2024.

 

         This rule: (i) will prohibit employers from entering into noncompete agreements and other clauses with all employees or service providers ("workers"); and (ii) will prohibit enforcement of existing noncompete clauses against all workers (with the exception of grandfathered agreements in effect on Sept. 4, 2024, which can continue to be enforced for senior executives).

 

         These FTC rules were designed to protect the fundamental freedom of workers to change jobs, increase innovation, and foster new business formation.

 

B.      Key Points in Final FTC Rule – The following are the key provisions in the FTC ban:

 

1.           Ban on Noncompete Clauses – Under the FTC rule, it is an unfair method of competition for a person (including an employee or independent contractor): (i) to enter into or attempt to enter into a noncompete clause; (ii) to enforce or attempt to enforce a noncompete clause; or (iii) to represent that the worker is subject to a noncompete clause. [2]

 

2.           Senior Executives Exception for Grandfathered Contracts – For senior executives, there is an exception if the noncompete was entered into prior to the effective date of the FTC regulations (Sept. 4, 2024). "Senior executives" mean workers who (i) are in a policy-making position, and (ii) received annual compensation of at least $151,164 in the preceding year (or annualized if was employed for only part of the year; and "policy-making position" means the president, chief executive officer or equivalent, any other officer of a business entity who has policy-making authority, or any other natural person who has policy-making authority for the business entity similar to an officer with policy-making authority. [3]  Thus, with respect to senior executives, any noncompete clauses entered into prior to Sept. 4, 2024 can continue to be enforced. [4]  After the effective date, no new noncompete provisions can be entered into.

 

3.           Notice Requirement – The new FTC rule provides that employers must provide notice to workers (other than senior executives) who are bound by an existing noncompete that they will not be enforcing any noncompete provisions against them. [5]  The notice may be on paper delivered by hand to the worker, or by mail at the worker's last known personal street address, or by email at an email address belonging to the worker, including the worker's current work email address or last known personal email address, or cell phone text message. [6]

 

4.           Model language – The FTC rules provides a model notice that employers can use for workers, which states how prior noncompetes may not be binding. [7]

 

5.           Sale ExceptionThe Final Rule does not prohibit enforcement of noncompete clauses that are entered into with respect to the bona fide sale of a business, including a bona fide sale of (i) a business entity, (ii) an individual’s interest in a business entity or (iii) all or substantially all of a business entity’s operating assets.[8]

 

6.           Only for Post-Employment Bans – The FTC ban specifically applies to post-employment noncompetes, so it does not affect restrictions on moonlighting in the same field.

 

7.           Non-Solicitation Clauses – Non-solicitation clauses that do not prohibit or function to prevent a worker from switching jobs or starting a new business are generally not restricted by the FTC rule, as noted in the preamble to the 2024 final rule.

 

8.           Objective – The FTC's final rule aims to enhance worker mobility, encourage entrepreneurship, and spur innovation by banning noncompete provisions and promoting a more dynamic economy.

 

C.      Stay and Preliminary Injunction on Enforcement of FTC Ban

 

1.     Stay and Preliminary Injunction by Federal Northern District in Texas – Within a day or two of when the FTC announced the final rule banning noncompete clauses, two lawsuits were filed in Texas to challenge the rule, (i) Ryan, LLC v. FTC [9] on Apr. 23, 2024 in the Northern District in Texas, and (ii) U.S. Chamber of Commerce v. FTC [10] the following day in the Eastern District in Texas. The Eastern District Court of Texas dismissed the Chamber of Commerce case because, under the first to file rule, the Ryan LLC case was filed first.[11] The Texas Northern District judge (Asa Brown), in Ryan LLC v. Federal Trade Commission, 2024 WL 3297524, --- F.Supp.3d --- (N.D. Tex. July 3, 2024), halted the FTC’s ban on non-compete agreements set to take effect in September 4, and issued a stay and a preliminary injunction against implementation of the FTC ban, originally set to take effect on September 4. The judge stated that she intends to issue a final decision on the merits by August 30, 2024. The judge noted that the FTC exceeded its statutory authority in promulgating the noncompete ban, and that the role of an administrative agency is to do as told by Congress, not to do what the agency thinks it should do.

 

2.     Disagreement by Federal District Court in Pennsylvania – In ATS Tree Services, LLC v. FTC, a similar suit was filed on Apr. 25, 2024 in the Eastern District in Pennsylvania. [12]  ATS Tree Services filed a motion for preliminary Injunction on May 14 seeking a stay of the effective date. In contrast to the Ryan LLC v. FTC case, discussed above, the Eastern District in Pennsylvania, in ATS Tree Services, LLC v. Federal Trade Commission, 2024 WL 3511630 (E.D. Pa., July 23, 2024), denied ATS Tree Services motion to stay and preliminary enjoin enforcement of the FTC ban because it did not find any irreparable harm.

 

        The Fifth Circuit in Texas (where the Ryan case was filed) is more employer friendly than the Third Circuit in Pennsylvania (were the ATS Tree Services case was filed), and a conflict of circuits may lead to an appeal to the Supreme Court to resolve the differences.

 

3.     Arguments for Challenges – Arguments made by the lawsuits include that: (i) the rules implicates the major questions doctrine, which would necessitate additional legal authority from Congress; (ii) the FTC rule is arbitrary and capricious under the Administrative Procedure Act because the evidence the FTC relies on cannot justify a nationwide ban of noncompetes in all situations; (iii) the FTC rule incorrectly expands what is a prohibited an unfair method of competition; and (iv) the rule unlawfully infringes on state contract laws.

 

4.     Stay in Effect – As noted above, since one of the Federal courts (N.D. Pa.) imposed a stay and preliminary injunction on the FTC ban, the status of the rule is currently in flux.

 

II.      States that Have Banned Noncompete Provisions (all Since 2021)

 

A.     Four States Ban All Noncompete Agreements – In the past three years, California, Minnesota, North Dakota and Oklahoma have passed broad legislation banning post-employment noncompete agreements, regardless of salary. (California has had long-standing legislation banning most noncompete agreements, but this was expanded by 2023 legislation even to out-of-state contracts.)

 

B.      Ten States and D.C. Ban Noncompete Agreements for Non-Highly Paid Employees – Colorado, Illinois, Maine, Maryland, New Hampshire, Oregon, Rhode Island, Virginia, Washington and the District of Columbia have all passed laws in the past three years prohibiting post-employment noncompete agreements unless the employee earned above a certain threshold. There are also non-compete rules from a few states prior to 2020, like Massachusetts in 2018 (and California, as noted above).  (Also, in July 2024, Pennsylvania banned noncompete covenants for health care providers if it is for more than one year or the health care provider was dismissed by the employer.)

 

C.      New York – In New York a bill that would ban almost all noncompete agreements was passed but was vetoed by Governor Hochul because it was too broad.  

 

III.     Existing State Law Regarding Noncompete Agreements.

 

A.     Existing States' Case-law Would be Applicable if Statutory Ban is Stayed – If the FTC ban on noncompete clauses is stayed or struck down in court, or reversed or limited in future legislation or FTC guidance, preexisting state law and state cases would become operative. In states that have not enacted recent bans on noncompete provisions (or where such state bans have been struck down), the existing case law in those states will again be operative.   

 

B.      Enforceability of noncompete agreements – State laws vary regarding enforceability of noncompete provisions. Generally, noncompete provisions will be enforced in most states if the restrictions are reasonable in geographical scope and reasonable in time period, and they are necessary to protect legitimate business interests.

 

For example, in New York, which is fairly liberal in allowing noncompete restrictions, the noncompete restrictions will be enforceable if: (i) the time period of restriction is reasonable, (ii) the geographical scope is reasonable, (iii) the burden on the employee is not unreasonable, (iv) public policy is not harmed, and (v) the restrictions are necessary for the employer's protection.[13] In New Jersey noncompete restrictions will be enforced only if reasonable under the circumstances.[14] Texas and Florida statutes restrict noncompete requirements unless they are reasonable restrictions necessary to protect legitimate business interests.[15]

 

California by statute, even prior to the 2023 ban, would generally void noncompete provisions, providing that "except as provided in this Chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void." [16] The Ninth Circuit allowed "narrow restraint" enforcement of noncompete provisions that are very limited, but the California Supreme Court rejected this exception.[17] The 2023 California legislative ban would, presumably, supersede these prior rules.

           

D.     Blue-penciling Noncompete Agreements – Where noncompete provisions are overbroad and therefore unenforceable on their terms, many states will "blue pencil" the restrictive covenants to a limited scope for which they would be enforceable. For example, in New York restrictive covenants will be blue penciled.[18] Often, employment agreements will add language to specifically provide for blue penciling.

 

IV.   Points to Consider re FTC Final Rule

 

A.  Review Noncompetes – Employers should review noncompete provisions that would violate a statutory ban and see if nonsolicitation and nondisclosure covenants can provide the needed protection.

 

B.   Sept. 4, 2024 Grandfather for Senior Executives and Modifications – As noted above, for executives earning over $151,164 annually and in a policy-making position, there is a grandfather exception from the FTC ban if the agreement was entered into prior to Sept. 4, 2024. It may be beneficial for that reason to separate the noncompete from other terms of the employment agreement so that the noncompete can remain unaltered in its grandfathered form.  It is not clear to what extent modifications to, or extensions of the terms of a pre-negotiated non-compete in connection with a separation) would result in loss of grandfathered status for senior executives.

 

C.   Notice – Notices tCo those with non-grandfathered noncompete agreements, do not have to be as discussed above.

 

D.  Garden-Leave – These are generally not covered by the FTC rule, because the employee is still employed for that period.

 

E.   Cease and DesistThe FTC cannot assess civil penalties for using unfair methods of competition, but if an entity is ordered to cease and desist from FTC violations, monetary penalties can sometimes be obtained in court.

 

F.   Modifications – It is unclear whether the negotiated non-compete in connection with a separation (even narrowing an existing scenario) would result in loss of grandfathered status for senior executives.

 

G.  Court Stay – As noted above, the Northern District in Pennsylvania imposed a stay and preliminary injunction on enforcement of the FTC noncompete ban.

 

 

 



[1]         Federal Trade Commission (FTC) New Final Noncompete Clause Rule in 26 CFR § 910, announced by the FTC on April 23, 2024, and published in 89 Fed. Reg. 38342 (May 7, 2024). The effective date is Sept. 4, 2024.

[2]         16 CFR § 910.2(a)(1).

[3]           16 CFR § 910.1

[4]         16 CFR § 910.2(a)(2).

[5]         16 CFR § 910.2(b)(1).

[6]         16 CFR § 910.2(b)(2)(b).

[7]         16 CFR § 910.2(b)(4) (figure 1).

[8]         See 16 CFR § 910.3.

[9]         Ryan LLC v. FTC, No. 3:24-cv-00986, (N.D. Tex. Apr. 23, 2024).

[10]        Chamber of Commerce of the U.S. v. FTC, No. 6:24-cv-00148 (E.D. Tex., Apr. 24, 2024).

[11]        ATS Tree Services, LLC v. FTC, No. 2:2024cv01743 (E.D. Pa. Apr. 25, 2024).

[12]        Chamber of Commerce of the U.S. v. Federal Trade Commission, -- F.Supp.3d --, 2024 WL 1954139 (E.D. Tex., May 3, 2024).

[13]        See, e.g., Service Systems Corp. v. Harris, 341 N.Y.S.2d 702 (4th Dep't 1973); Mallory Factor Inc. v. Schwartz, 146 A.D.2d 465, 536 N.Y.S.2d 752 (1st Dep't 1989); International Paper Co. v. Suwyn, 951 F. Supp. 445 (S.D. N.Y. 1997).

[14]        E.g., Community Hosp. Group, Inc. v. More, 183 N.J. 36, 869 A.2d 884 (2005).

[15]        Texas Business & Commerce Code §15.50; Florida Statutes Annotated §542.335.

[16]        California Business & Professional Code §16600.

[17]        The Ninth Circuit provided a narrow restraint exception in Campbell v. Trustees of Leland Stanford Jr. University, 817 F.2d 499 (9th Cir. 1987) and General Commercial Packaging v. TPS Package Engineering, Inc., 126 F. 3d 1131 (9th Cir. 1997). The California Supreme court rejected this narrow restraint exception in Edwards v. Arthur Andersen LLP, 44 Cal.4th 937, 81 282 (Cal. S. Ct. 2008).

[18]        See, e.g., Deborah Hope Doelker, Inc. v. Kestly, 87 A.D.2d 763, 449 N.Y.S.2d 52 (1st Dep't 1982); Muller v. N.Y. Heart Ctr. Cardiovascular Specialists P.C., 238 A.D.2d 776, 656 N.Y.S.2d 464, 465 (3d Dep't 1997); BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 690 N.Y.S.2d 854, 712 N.E.2d 1220 (1999).

Friday, November 3, 2023

2024 BENEFIT PLAN COST-OF-LIVING ADJUSTMENTS (with SECURE 2.0 changes)


11/4/2023

Charles C. Shulman, Esq.
212-380-3834 201-357-0577 
cshulman@ebeclaw.com

    2024 BENEFIT PLAN COST-OF-LIVING ADJUSTMENTS (with SECURE 2.0 changes)

 

BENEFIT PLAN COST-OF-LIVING ADJUSTMENTS

2023

2024

Qualified Plan Adjustments

402(g) Deferral Limit – Annual limit on pre-tax salary deferrals to 401(k), 403(b) and 457(b) plans – IRC §§ 402(g)(1), 402(g)(3) & 457(e)(15)

$22,500

$23,000

Age 50 Additional Catch-Up Deferrals – Age 50 & older “catch-up” deferrals beyond the 402(g) limit above available for 401(k), 403(b), & governmental 457(b) plans – IRC § 414(v)(2)(B)(i). 
Under the SECURE 2.0 Act of 2022 (SECURE 2.0) § 603 the catch-up for highly-compensated employees (in the previous year) to a qualified plan (401(k), 403(b) & 457(b)) will need to be Roth contributions beginning in 2026. Also, under SECURE 2.0 § 109 the catch-up for those ages 60-63 will be increased about 50% in 2025.

$7,500

$7,500

DB Benefit Limit – Limit on annual benefits from defined benefit plans – IRC § 415(b)

$265,000

$275,000

DC Contribution Limit – Annual contribution limit for defined contribution plans – IRC § 415(c)

$66,000

$69,000

Compensation Limit – Annual compensation limit for qualified plans and SEPs IRC §§ 401(a)(17), 404(l) & 408(k)

$330,000

$345,000

Grandfathered § 401(a)(17) annual compensation limit for governmental plans in effect on July 1, 1993 – Treas. Reg. § 1.401(a)(17)-1(d)(4)(ii)

$490,000

$505,000

Highly Compensated Employee - Highly compensated employee threshold for nondiscrimination testing in the following year – IRC § 414(q)(1)(B)

 

$150,000

 

$155,000

Key Employee Officers in Top Heavy Plan – Key employee threshold for officers in top heavy plans – IRC § 416(i)(1)(A)(i)

$215,000

$220,000

QLAC Limit – Limit on premiums for qualified longevity annuity contracts (QLACs) under Treas. Reg. § 1.401(a)(9)-6 Q&A 17 increased from $150,000 to $200,000 under SECURE 2.0 § 202 for contracts purchased or received on or after Dec. 29, 2022

 

$200,000

 

$200,000

ESOP Distributions – (i) minimum account balance allowing extension of distribution period beyond 5 years; and (ii) dollar amount (or fraction) in excess of minimum account balance allowing extension of distribution period for additional year – IRC § 409(o)(1)(C)(ii)

(i) $1,330,000

(ii) $265,000

(i) $1,380,000

(i) $275,000

SEP & SIMPLE Adjustments

SEP Earnings Level – Minimum earnings level to qualify for Simplified Employee Pension (SEP) IRA – IRC § 408(k)

$750

$750

SIMPLE Salary Deferral Limit – SIMPLE 401(k) or SIMPLE IRA elective deferral limit – IRC § 408(p)(2)(E) (referenced by § 401(k)(11)(B)(i)(I))

$15,500

$16,000

SIMPLE Catch-Up for Age 50 – SIMPLE 401(k) or SIMPLE IRA age 50 catch-up IRC § 414(v)(2)(B)(ii). Under SECURE 2.0 beginning in 2024 the SIMPLE catch-up is supposed to increase by 10%. Also, under SECURE 2.0 § 109 the catch-up for SIMPLE plans for those ages 60-63 will be increased about 50% in 2025.

$3,500

$3,500

Traditional IRA & Roth IRA Adjustments

IRA Limit – Traditional IRA and Roth IRA contribution limit is indexed – IRC §§ 219(b)(5)(A), 408(a)(1) & 408A(c)(2)

$6,500

$7,000

Spousal IRA Contribution Limit – A spousal IRA or spousal Roth IRA where both spouses contribute is double the above.

$13,000

$14,000

IRA Catch-up Contribution - Age 50 & older “catch-up” for IRAs & Roth IRAs (not currently adjusted but under SECURE 2.0 § 108 will adjust beginning in 2025) – IRC § 219(b)(5)

$1,000

$1,000

Phaseout where IRA Owner is also Covered by an Employer Plan – Adjusted gross income (AGI) phase-out of deductible contribution to IRA if individual is also covered by employer-sponsored retirement plan for: (i) married filing jointly, (ii) single or (iii) married filing separately – IRC § 219(g)(1)-(5)

(i) $116,000 - $136,000, (ii) $73,000 - $83,000, (iii) 0 - $10,000

(i) $123,000 - $143,000, (ii) $77,000 - $87,000, (iii) 0 - $10,000

Phaseout where Spouse of IRA Owner is Covered by an Employer Plan – AGI phase-out of deductible contribution to IRA if contributor is not covered by an employer-sponsored plan but spouse is covered by an employer-sponsored plan – IRC § 219(g)(7)

$218,000 - $228,000

$230,000-$240,000

Phaseout of Roth IRA Contributions – AGI phase-out deduction for contributions to the Roth IRA for (i) married filing jointly, (ii) single or (iii) married filing separately – IRC § 408A(c)(3)(B)

(i) $218,00 - $228,000, (ii) $138,000 - $153,000, (iii) 0 - $10,000

(i) $230,000 - $240,000, (ii) $146,000 - $161,000, (iii) 0 - $10,000

Saver’s Credit – A “saver’s credit” under IRC § 25B(b) provides a tax credit for salary deferrals to a 401(k) or 403(b) plan or contributions to an IRA for those with AGI below a certain level, with a credit (for married filing jointly) of (i) 50% of contribution if AGI is not more than a specified dollar amount, (ii) 20% if AGI is in a specified dollar range and (iii) 10% if AGI is in higher specified dollar range. Single and married filing separately have lower limits. (Effective for plan years beginning 2027, SECURE 2.0 § 103 sunsets the § 25B saver’s credit and replaces it with a federal matching contribution under IRC § 6433, which is 50% of the contributions up to $2,000 per individual, but phases out if AGI is between $41,000 and $71,000 for married filing jointly, and $20,500 to $35,500 for single taxpayers and married filing separate returns.)

(i) $43,500, (ii) $43,501- $47,500, (iii) $47,501 - $73,000

(i) $46,000, (ii) $46,001- $50,000, (iii) $50,001 - $76,500

PBGC Premium and Guaranty Adjustments

PBGC Flat-Rate Premium – PBGC flat-rate premium per participant for a single-employer plan (under ERISA § 4006 & PBGC Premium Rates webpage)

$96

$101

PBGC Variable-Rate Premium - PBGC variable-rate premium for single-employer plans (i) per $1,000 of Unfunded Vested Benefits, and (ii) per participant cap.  SECURE 2.0 § 349 will increase in 2025 the variable rate $52 per participant x $1000 of UVBs so that the $52 amount is indexed for inflation.

(i) $52
(ii) $652

(i) $52

(ii) $686

Multiemployer Premium - PBGC premium for multiemployer plan per participant

$35

$37

PBGC Guaranteed Benefit - PBGC guaranteed benefits under ERISA § 4022 where PBGC is the trustee (for annual single life annuity beginning at age 65)

$81,000
($6,750 a month)

$85,295.40

($7,107.95 a month)

FSA, HRA, HSA, and ACA Adjustments

Health FSA Limit – Health FSA (flexible spending account) limit – IRC § 125(i)

$3,050

$3,200

Heath FSA Carryover – Health FSA carryover amount

$610

$640

HRA Contribution Limit – Health Reimbursement Account (HRA) maximum employer contribution – Treas. Reg. § 54.9831-1(c)(3)(viii)(B)

$1,950

$2,100

HSA Limit – Health Savings Account (HSA) deduction limit for (i) single & (ii) family – IRC § 223(b)(2)

(i) $3,850

(ii) $7,750

(i) $4,150

(ii) $8,300

HDHP Deductible – HDHP (with HSA) minimum deductibles for (i) self-only or (ii) family coverage – IRC § 223(c)

(i) $1,500

(ii) $3,000

(i) $1,600

(ii) $3,200

HDHP Out of Pocket – HDHP (with HSA) maximum out-of-pocket amounts for (i) self-only & (ii) family coverage – IRC § 223(c)

(i) $7,500

(ii) $15,000

(i) $8,050

(ii) $16,100

QSEHRA Limit – Qualified small employer HRA (QSEHRA) for small business (less than 50 employees) and the maximum payments and reimbursements (i) single coverage and (ii) family coverage – IRC § 9831(d)

(i) $5,850

(ii) $11,800

(i) $6,150

(ii) $12,450

MSAs – Existing Archer Medical Savings Accounts have annual deductible range (i) for single coverage & (ii) for family coverage, and out-of-pocket maximum (iii) for single coverage and (iv) for family coverage – IRC § 220(c)(2)(A)

(i)  $2,650 - $3,950, (ii) $5,300 - $7,900, (iii) $5,300,
(iv) $9,650

(i) $2,800 - $4,150,
(ii) $5,550 - $8,350, 
(iii) $5,550,
 (iv) $10,200

ACA Out of Pocket Maximum – Affordable Care Act (ACA) out-of-pocket maximum (cost-sharing) for non-grandfathered group health plans for (i) self & (ii) family – 42 USC § 18022(c); 45 CFR § 156.130(a)

(i) $9,100

(ii) $18,200

(i) $9,450

(ii) $18,900

ACA Affordability Rate – ACA health plan “affordability” rate of pay (percentage of household income) for premium tax credit – IRC § 36B(c)(2)(C)(i)(II)

9.12%

 8.50%

ACA Pay or Play Penalties – ACA employer shared responsibility assessments (i) if do not offer coverage to 95% of full-time employee, penalty for each FTE; and (ii) if do offer coverage to 95% of FTEs but is not “affordable” penalized only for employees who buy Marketplace coverage and receive premium tax credit – IRC § 4980H

(i) $2,880

(ii) $4,320

(i) $2,970

(ii) $4,460

Fringe Benefit Adjustments

Transportation Fringe – Qualified transportation & parking benefit – IRC § 132(f)(2)

$300

$315

Adoption – Adoption credit or exclusion from income (i) amount and (ii) AGI phaseout – IRC §§ 23(a)(3) & 137(a)(2)

(i) $15,950,
(ii) $239,230 - $279,230

(i) $16,810,
 (ii) $252,150 - $292,150

LTC Deduction Limit – Long-term care premium deduction limits for individuals (i) age 40 or less, (ii) age 41-50, (iii) age 51-60, (iv) age 61-70 and (v) over age 70 – IRC § 213(d)(10)

(i) $480, (ii) $890,
(iii) $1,790, (iv) $4,770 & (v) $5,960

(i) $470, (ii) $880, (iii) $1,760, (iv) $4,700 & (v) $5,880

Social Security Adjustments

Taxable Wage Base – the taxable wage base subject to FICA (OASDI) tax (SSA Oct. 2023 COLA Fact Sheet)

$160,200

$168,600

SS Tax up to Taxable Wage Base – Social Security (OASDI) tax up to taxable wage base (double for self-employed)

6.2%

6.2%

Medicare Tax – Medicare tax and no cap on wages (plus 0.9% Medicare tax for wages in excess of $250,000 (joint filers) / $200,000 (single))

1.45%

1.45%

SS COLA – Social Security cost of living increase

8.7%

3.2%

Sample Penalty Adjustments

DOL Penalties – Sample DOL penalties per day for
(i) failure to file annual report (Form 5500) - ERISA § 502(c)(2) (originally $1,000 per day), or
(ii) failure to provide blackout or diversification notice – ERISA § 502(c)(7) (originally $100 per day)

 
(i) $2,586

(i) $164

 

TBA 

 

 

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