Data & Research February 12, 2018

Nearly One-Third of Employers Plan to Use Tax Breaks on Employee Compensation, Benefits

Of this group, 25% said they will increase their company match to the 401(k) plan. 

Reported by

Following the passage of the Tax Cuts and Jobs Act, Aon conducted a survey of 504 mid-sized to large employers to find out how they plan to use the additional capital, as well as a survey of 2,079 employees to learn how they would like to see that money allocated.

The employer survey showed that 29% of employers plan to use the funds for employee compensation and benefits. Another 26% plan to spend the money on capital structure, 24% on infrastructure and 23% as a direct return to shareholders.

The survey also indicated that companies plan to use the windfall primarily in a broad-based way, though in some cases for a specific gap: 55% said they would use the money in a broad-based way, 15% to address pay gaps, 21% for specific job families, and 33% for other uses.

As to the timeframe for when they plan to announce these changes, 14% have already announced their changes, 26% plan to announce changes this year, and 60% are still determining their plans or are not planning to make any changes.

Of the group that said they have made or are considering making changes to compensation and benefits, 26% said they are increasing workers’ base pay, 25% said they are contributing more to their 401(k) plan, 22% said they are giving workers a one-time cash payout, 15% said they are making improvements to employee training, and 14% said they are increasing bonus targets.

A full two-thirds, 66%, of employees said they would like their employer to increase their pay. Other desired uses: 32% want their employer to invest in their business to create new locations, products or solutions; 22% would like a one-time cash payout; 20% would like their employer to allow them to choose what benefit they would like; and 11% would like their employer to increase their match to their 401(k) plan.

If employees were to get a pay increase or a one-time cash payout, 51% said they would save it, 30% would use the money to pay down credit card bills, and 7% would spend it. Sixty-nine percent of employees said they would prefer to receive 1% more in their 401(k) rather than 2% in profit sharing. Should their employer make changes to their health care insurance, 50% of employees would like lower monthly premiums.
Compliance February 9, 2018

Hardship Withdrawal Changes Included in Budget Deal

Several provisions of the two-year budget bill affect retirement plans.

Reported by

In the two-year budget bill signed by President Donald Trump, there are provisions that affect retirement plans.

If the Internal Revenue Service (IRS) has levied a participant’s employer-sponsored retirement account or individual retirement account (IRA) and subsequently returned the money and interest, the bill allows for the person to recontribute the amount to the retirement plan or IRA. The contribution will be treated as a rollover, and the interest treated as earnings within the plan.

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According to the bill, the plan or IRA must permit rollovers and the contribution must be made no later “than the due date (not including extensions) for filing the return of tax for the taxable year in which such property or amount of money is returned.” The rule regarding the allowance of repayment of a levy applies to 401(k)s, 403(b)s and 457 plans. It is effective for taxable years beginning after December 31, 2017.

The bill also calls for the Secretary of Treasury to amend regulations to delete the six-month prohibition on contributions to a retirement plan following a hardship withdrawal. The allowance of hardship withdrawals is also extended in the bill to contributions to a profit sharing or stock bonus plan, qualified non-elective contributions (QNECs) and qualified matching contributions (QMACs) and earnings on the contributions now allowed. In addition, the bill says, “A distribution shall not be treated as failing to be made upon the hardship of an employee solely because the employee does not take any available loan under the plan.” These rules say they amend section 401(k) and subsections under that. They are effective for plan years beginning after December 31, 2018.

The bill provides relief from the early withdrawal penalty on distributions of up to $100,000 from an employer plan for victims of California wildfires. Participants can spread the amount over three years for inclusion in income for tax purposes. It also allows individuals to repay any distributed amounts to the plan within three years from the date the distribution was made. The bill also includes an increase in the allowable amount of loans for wildfire victims and relief for loan repayments not made due to the wildfires.

Finally, the new law calls for creation of a Joint Select Committee to Solve the Multiemployer Pension Crisis which will introduce bipartisan legislation to address the multiemployer pension crisis by December this year.

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