The IRS recently released the 2024 contribution limits for health savings accounts (HSAs), as well as the 2024 minimum deductible and maximum out-of-pocket amounts for high-deductible health plans (HDHPs).
What is an HSA?
An HSA is a tax-advantaged account that enables you to save money to cover healthcare and medical costs that your insurance doesn’t pay. The funds contributed are made with pre-tax dollars if you contribute via payroll deduction or are tax deductible if you make them yourself using after-tax dollars. (HSA contributions and earnings may or may not be subject to state taxes.) Withdrawals used to pay qualified medical expenses are free from federal income tax.
You can establish and contribute to an HSA only if you are enrolled in an HDHP, which offers “catastrophic” health coverage and pays benefits only after you’ve satisfied a high annual deductible. Typically, you will pay much lower premiums with an HDHP than you would with a traditional health plan such as an HMO or PPO.
If HSA withdrawals are not used to pay qualified medical expenses, they are subject to ordinary income tax and a 20% penalty. When you reach age 65, you can withdraw money from your HSA for any purpose; such a withdrawal would be subject to income tax if not used for qualified medical expenses, but not the 20% penalty.
Importantly, make sure to stop contributing to your HSA at least six months before you do plan to enroll in Medicare. This is because when you enroll in Medicare Part A, you receive up to six months of retroactive coverage, not going back farther than your initial month of eligibility. If you do not stop HSA contributions at least six months before Medicare enrollment, you may incur a tax penalty.
What’s changed for 2024?
Here are the updated key tax numbers relating to HSAs for 2023 and 2024.
Prepared by Broadridge. Edited by BFSG. Copyright 2023.
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The Employee Retirement Income Security Act (ERISA) requires coverage to protect the plan from losses due to fraud and dishonesty.
There are three main types of bond coverage for retirement plans: fidelity bonds, fiduciary liability insurance, and cyber liability insurance. Not all three coverages are required, but understanding what is available and what they cover will help you determine the best protection for your plan.
ERISA Fidelity Bond
An ERISA fidelity bond protects the plan against losses caused by acts of fraud or dishonesty—such as theft, embezzlement, and forgery—by those who handle plan funds or other property. These funds or property are used by the plan to pay benefits to participants. This includes plan investments such as land, buildings, and mortgages. It also includes contributions received by the plan and cash or checks held to make distributions to participants. A person is considered to “handle” plan funds if their duties could cause a loss due to fraud or dishonesty, either by acting alone or in collaboration with others. Per the U.S. Department of Labor (DOL), handling refers to the following:
Bond coverage is required for most ERISA employee benefit plans and the amount of coverage is reported on your plan’s Form 5500. The minimum coverage is 10% of prior year plan assets but not less than $1,000. The maximum bond amount is $500,000, or $1,000,000 for plans that hold employer securities. Bonding requirements do not apply to plans that are not subject to Title 1 of ERISA, such as church or governmental plans. Some regulated financial institutions (certain banks and insurance companies, for example) are exempt if they meet certain criteria.
The fidelity bond can be part of your company’s umbrella policy or can stand alone. In either case, the plan must be named and there can’t be a deductible. If your fidelity bond is less than $500,000, including an inflation guard will automatically increase the value of the fidelity bond to cover the growing plan assets so you will always have adequate coverage. It should be noted that the fidelity bond is different than the employee dishonesty bond that may be in effect for your company. While both provide coverage in the case of fraud, the fidelity bond provides protection for the plan, whereas the employee dishonesty bond protects the employer.
Fiduciary Liability Insurance:
Fiduciary liability insurance covers fiduciaries against losses due to a breach of fiduciary responsibility. A fiduciary is defined by the DOL as any of the following:
Examples of fiduciaries include plan trustees, plan administrators, and members of the plan’s investment committee. A fiduciary is in a position of trust with respect to the participants and beneficiaries in the plan and is responsible to act solely in their interest, provide benefits, defray reasonable expenses, follow the plan document, and diversify plan investments. The fiduciary must act with care, skill, prudence, and diligence. This bond is not required but can provide protection to the fiduciaries.
Cyber Liability Insurance:
Cyber liability insurance for the plan provides protection from covered losses and expenses in the event of a cyber breach. Your service provider’s insurance may not cover your plan for all losses, so the plan may want to consider its own policy. In May 2023 at the Plan Sponsor Council of America National Conference, DOL Assistant Secretary Lisa Gomez mentioned the importance of cybersecurity. She stressed that many employers may have cyber liability insurance for the company and assume that it covers the plan, but the fine print in the policy clarifies that it does not cover the company in its capacity as a plan sponsor.
In 2021, the DOL issued cybersecurity guidance for plan sponsors, plan fiduciaries, record-keepers, and plan participants. The guidance, which is still very relevant, included the following:
You can access the full news release here: https://www.dol.gov/newsroom/releases/ebsa/ebsa20210414
Things can happen outside of the control of the plan sponsor. Check with your service providers to determine the type of coverage your plan needs to be protected.
As situations arise during the plan year, it’s always better to double check the plan provisions rather than address a plan failure after the fact. In some situations, it’s easier to ask for forgiveness rather than permission, but that isn’t true in retirement plans. Correcting mistakes can be very costly. Do not hesitate to reach out to us for clarification on what the plan allows. For example:
When a participant (staff or owner) requests a distribution, there is a process to follow to ensure the distribution is permitted by the plan. Questions to be considered:
Contributions to the plan must be made per the provisions of the plan. If an employer contribution is usually funded after the end of the year but you find you have funds available during the year, a deposit may have to wait.
Are there changes to the company being considered? These events should be discussed prior to the effective date of the change because the plan can be greatly impacted.
Any time funds are going into the plan or leaving it, there are terms of the plan that must be followed. If you find the provisions no longer suit you and your employees, an amendment can be considered to make the necessary changes. It is very important to operate the plan in accordance with the plan document, so please ask for clarification as needed!
As time goes by, the needs of a company and the needs of the participants evolve, and a plan may need to be amended to keep up with those changes. This is a good time of year to review plan provisions and determine if any changes are needed before the next plan year. Below are some possible considerations:
Automatic enrollment can boost plan participation. Participants who don’t make an election will have 401(k) deferrals withheld automatically. There are several types of automatic enrollment designs that offer variations that may work best for the plan.
Does the plan fail the Actual Deferral Percentage/Actual Contribution Percentage (ADP/ACP) testing and require refunds to the Highly Compensated Employees? If so, it may be beneficial to add a safe harbor contribution, which could be either a match or a non-elective contribution. If the plan already has a safe harbor contribution, it’s possible that a different type of safe harbor will provide a better result.
Should employees be eligible for the plan earlier, or should they be ineligible for a longer period of time? It may be time to review the plan’s eligibility requirements.
Are the right participants receiving the contribution? For a non-safe harbor contribution, consider how terminated participants, participants who work low hours, and different classes of employees earn a contribution.
Is the best profit-sharing contribution formula being used? There are several ways to allocate a profit-sharing contribution, including pro rata (everyone receives the same percentage), integrated (employees with earnings above a certain dollar amount receive more), cross tested/new comparability (projects benefit to retirement and each person can receive a different contribution) and flat dollar amount (everyone receives the same amount). The best fit may change over time as the employee base changes.
Certain owners looking to boost the employer contribution beyond the limits of an existing 401(k) plan may be interested in adding a cash balance plan.
These are some ideas to be considered by plan sponsors throughout the life of a plan. Reach out if you would like to discuss any of these options.
15th: Required contribution to Money Purchase Pension Plans, Target Benefit Pension Plans, and Defined Benefit Plans.
15th: Contribution deadline for deducting 2022 employer contributions for those sponsors who filed a tax extension for Partnership or S-Corporation returns for the March 15, 2023 deadline.
30th: Deadline for certification of the Annual Funding Target Attainment Percentage (AFTAP) for Defined Benefit plans for the 2023 plan year.
16th: Extended due date for the filing of Form 5500 and Form 8955 for plan years ending December 31, 2022.
16th: Due date for 2023 PBGC Comprehensive Premium Filing for Defined Benefit plans.
16th: Contribution deadline for deducting 2022 employer contributions for those sponsors who filed a tax extension for C-Corporation or Sole-Proprietor returns for the April 18, 2023 deadline.
16th: Due date for non-participant-directed individual account plans to include Lifetime Income Illustrations on the annual participant statement for the plan year ending December 31, 2022.