In August, the IRS issued a private letter ruling allowing an employer to offer flexibility to its employees to redirect a non-elective retirement plan contribution to the employee’s HSA (health savings account), Retiree HRA (health reimbursement account), or Educational Assistance Program. The private letter ruling came on the heels of IRS guidance for implementing a Qualified Student Loan Program match, which allows employers to make a matching contribution in a participant’s 401(k) or 403(b) plan when payments are made on qualified education loans. Though the ruling applies only to the employer who requested the PLR, it does give insight into another plan option that may be allowed in the future. Both of these “cross-benefit” regulatory innovations reflect the idea that participants will get more of a benefit from their employer’s benefits programs if the employee has control over how contributions are allocated.
Giving employees more flexibility… why not? Why wouldn’t a plan sponsor want to adopt a Qualified Student Loan Program or pursue allowing employees to allocate plan contributions towards benefits outside the retirement plan?
Here are a few reasons: recordkeeping, compliance, and staff time (at least given today’s technology and recordkeeping platforms). Most compliance testing is done within two systems: the plan’s recordkeeping platform and the employer’s payroll system. This is complex enough, as your third-party administrator and auditor can attest! Try adding a third system for monitoring loan payments, or a fourth for HSA or Retiree HRA data, and the complexity will only grow from there. Until standards are developed for integrating data across many different benefits providers, the cost of these types of cross-benefit contributions will be internal staff time. Specifically, resource-constrained employers will be left with new (manual) recordkeeping responsibilities to track compliance across plans, resulting in new sources of regulatory and fiduciary risk.
So, even if you believe these cross-benefit regulatory innovations would be welcomed by your employees, it may be too early for all but the largest employers (with a deep HR staff) to pursue adopting them. Instead, I suggest you may be better off monitoring the adoption of these contribution strategies, and the technology solutions being put in place by recordkeepers and benefits providers to offload those new plan sponsor compliance responsibilities and risks. Sometimes the rewards outweigh the risks of being a pioneer… just not when it comes to retirement plan recordkeeping and compliance!
If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
