IRS Announces 2022 Cost-of-Living Adjustments for Retirement Plans

The IRS recently announced the 2022 cost-of-living adjustments to various benefit and contribution limits applicable to retirement plans. Generally, the IRS increased the applicable limits for 2022, although certain limits remained unchanged. The following limits apply to retirement plans in 2022:

  • The limit on elective deferrals under 401(k), 403(b), and eligible 457(b) plans increased to $20,500.
  • The limit on additional catch-up contributions by participants age 50 or older remains unchanged at $6,500. This means that the maximum amount of elective deferral contributions for those participants in 2022 is $27,000.
  • The Internal Revenue Code (“Code”) Section 415 annual addition limit is increased to $61,000 for 401(k) and other defined contribution plans, and the annual benefit limit is increased to $245,000 for defined benefit plans.
  • The limit on the annual compensation that can be taken into account by qualified plans under Code Section 417 is increased to $305,000.
  • The dollar level threshold for becoming a highly compensated employee under Code Section 414(q) increased to $135,000 (which based on the look-back rule is applicable for HCE determinations in 2023 based on compensation in 2022).
  • The dollar level threshold for becoming a “key employee” in a top-heavy plan under Code Section 416(i)(1) is increased to $200,000.

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ERISA Litigation Roundup: Federal District Court Dismisses ERISA Stock-Drop Suit

On September 30, 2021, the U.S. District Court for the District of Connecticut dismissed an ERISA stock-drop lawsuit brought against alleged fiduciaries of Aetna, Inc.’s (Aetna’s) employee stock ownership plan (ESOP), holding that the plaintiffs failed to state a fiduciary breach claim under ERISA.  Radcliffe v. Aetna, Inc., No. 3:20-cv-01274, 2021 WL 4477408 (D. Conn. Sept. 30, 2021).

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ERISA Litigation Roundup: Northern District of Illinois Dismisses ERISA Stock-Drop Suit

On August 23, 2021, the U.S. District Court for the Northern District of Illinois dismissed an ERISA stock-drop lawsuit brought against fiduciaries of Kraft Heinz Food Company’s employee stock ownership plan (ESOP), holding that the plaintiffs failed to meet the “more harm than good” pleading standard set forth in Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409, 428 (2014). Osborne v. Emp. Benefits Admin. Bd. of Kraft Heinz, No. 20-cv-2256, 2021 WL 3725613 (N.D. Ill. Aug. 23, 2021).

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Forced Rollovers of Small Retirement Account Balances: What to Do with Missing Participants

When a participant experiences a distribution event (e.g., terminating service with the employer), and when the participant does not affirmatively elect to take the distribution, a plan document may require that an account balance of $5,000 or less be distributed immediately, and without the participant’s consent, by rolling the account over to an IRA. This is sometimes called a “forced rollover.” When making a forced rollover, a plan must comply with the applicable plan provisions and related Internal Revenue Service (“IRS”) and Department of Labor (“DOL”) guidance.

A forced rollover can only be made if a participant’s vested account balance is $5,000 or less. If a participant’s vested account balance is greater than $5,000, the account cannot be distributed without participant consent (unless the participant has attained the later of normal retirement age or age 62). The only exception to that limit is for terminating defined contribution plans. Additionally, although the Code does not require a forced rollover for distributions of $1,000 or less (where a “forced” distribution can be used in lieu of a rollover), the plan document can require that mandatory distributions of $1,000 or less be rolled over to an IRA.

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IRS Guidance on New COBRA Subsidy Clarifies Many Outstanding Questions

On May 18, 2021, the IRS released Notice 2021-31, a lengthy series of FAQs clarifying many aspects of the new COBRA subsidy made available under the American Rescue Plan Act of 2021 (ARPA). The FAQs address many of the issues raised by plan sponsors since the subsidy was enacted earlier this year. Although this blog post does not address every nuance of the guidance—the IRS issued a whopping 86 FAQs—below we point out some clarifications that might be of interest to group health plan sponsors:

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ERISA Litigation Roundup: Ninth Circuit Affirms Dismissal of ERISA Stock-Drop Suit

On April 19, 2021, in Wilson v. Craver, No. 18-56139, 2021 WL 1523253 (9th Cir. Apr. 19, 2021), the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal of an ERISA stock-drop lawsuit brought against fiduciaries of Edison International’s employee stock ownership plan (ESOP), holding that the plaintiff failed to meet the “more harm than good” pleading standard set forth in Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409, 428 (2014).

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IRS Clarifies Pandemic-Related Relief for Dependent Care FSAs

As noted in our prior blog posts here and here, the Consolidated Appropriations Act of 2021 (the “Act”) includes several types of relief for flexible spending accounts (“FSAs”), impacting both health and dependent care FSAs.  In February, the IRS issued Notice 2021-15 (the “Notice”), which provides clarifying guidance with respect to the Act’s FSA relief provisions and answers many of the outstanding questions posed by employers following the Act’s passage.  Our prior blog post answers common questions about how the guidance applies to health FSA benefits. Below we describe the key changes in the Act and the Notice (together, the “Relief”) specific to dependent care FSAs.

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IRS Issues Guidance on Missing Participants and State Unclaimed Property Funds

In October 2020, the IRS issued two pieces of guidance addressing (1) the tax withholding and reporting of distributions from qualified retirement plans to state unclaimed property funds, and (2) the ability of taxpayers to roll over funds that were previously escheated to a state unclaimed property fund.

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