Every Fall, the coming year’s Cost-of-Living Adjustments (COLAs) are released by the Internal Revenue Service. The benefit increases counteract the effects of inflation and keep up with the “cost of living”. Below are the limits for 2019.
|Maximum compensation limit||$280,000||$275,000|
|Defined contribution plan maximum contribution||$56,000||$55,000|
|Defined benefit plan maximum benefit||$225,000||$220,000|
|401(k), 403(b) and 457 plan elective maximum elective deferrals||$19,000||$18,500|
|SIMPLE plan elective deferrals||$13,000||$12,500|
|Highly Compensated Salary Threshold||$125,000||$120,000|
|Officer Salary Threshold||$180,000||$175,000|
|Social Security taxable wage base||$132,900||$128,400|
Natural disasters can cause upheaval in many aspects of victims’ lives and this destruction often extends to financial matters. What should otherwise be routine compliance for plan deadlines can prove difficult in these extreme events and the government tends to grant temporary relief in such cases.
The Department of Labor announced Oct. 26th that it has published employee benefit plan compliance guidance and relief for victims of recent Hurricanes Florence and Michael. The relief
includes easing of enforcement concerning the rules governing plan loans and distributions, as well as relief regarding filing the Form 5500. This is in conjunction with an earlier October 12th release by the IRS announcing it is granting relief to certain victims in areas of Florida and Georgia that suffered at the hands of these storms. To see the full IRS release and further detail on the relief extensions, visit https://www.irs.gov/newsroom/tax-relief-for-victims-of-hurricane-michael-in-florida.
Storm victims in the following counties are subject to the extensions:
Florida counties – Bay, Calhoun, Franklin, Gadsden, Gulf, Hamilton, Holmes, Jackson, Jefferson, Leon, Liberty, Madison, Suwannee, Taylor, Wakulla and Washington
Georgia counties – Baker, Bleckley, Burke, Calhoun, Colquitt, Crisp, Decatur, Dodge, Dooly, Dougherty, Early, Emanuel, Grady, Houston, Jefferson, Jenkins, Johnson, Laurens, Lee, Macon, Miller, Mitchell, Pulaski, Seminole, Sumter, Terrell, Thomas, Treutlen, Turner, Wilcox, and Worth
The DOL also announced that it will not allege a violation of the blackout notice requirements solely on the basis that a fiduciary did not make the required written determination due to Hurricane Florence or Hurricane Michael. If you were subject to these natural disasters, it’s in your best interest to work with your TPA to take advantage of the possible relief offered by the DOL and IRS.
Domestic equity markets posted solid gains in the second quarter of 2018 as strong corporate earnings and positive domestic economic data outweighed investor concerns over rising interest rates and the possibility of a global trade war. The S&P 500 index bounced back from a weak first quarter returning 3.4% during the second quarter, leaving the index up 2.6% year-to-date.
Small-cap stocks outperformed their large-cap counterparts, with the Russell 2000 index returning 7.8% during the second quarter. A generally lower dependency on global trade, a rising U.S. dollar, and increasing profitability from U.S. tax reform contributed to the small-cap rally. Within the small-cap asset category, value-oriented stocks outperformed growth-oriented stocks, while the opposite was true for large-cap stocks. The energy sector posted the largest gains during the quarter as oil prices increased sharply, followed by the consumer discretionary and technology sectors. On the other hand, trade sanctions and a flattening yield curve weighed heavily on the industrials and financials sectors, respectively, with each sector declining 3.2% during the quarter.
International equity markets generally underperformed during the second quarter of 2018, with losses for U.S. investors amplified by the strengthening U.S. dollar. Emerging markets suffered the most with the MSCI EM index falling 8.0% during the quarter. Outside of the U.S., the United Kingdom had one of the best performing markets, with the MSCI UK index gaining 3.0% due to a boost in UK exports and a further decline in the value of the British pound.
The Federal Open Market Committee (“FOMC”) lifted its federal funds’ target rate by 25 basis points to a range of 1.75% to 2.00% during its June meeting. Current market expectations are for two additional 25 basis point increases during 2018 and three more during 2019. The U.S. yield curve continued to flatten throughout the quarter, with the spread between 2- and 10-year yields
reaching its lowest point in over 10 years. The yield on the 10-year Treasury began the quarter at 2.74% and spiked to a high of 3.11% in May before finishing the quarter at 2.85%.
According to the initial estimate, gross domestic product (GDP) rose 4.1% during the second quarter, which is the highest rate since the third quarter of 2014. Robust consumer and business spending and a large increase in exports before the implementation of retaliatory tariffs helped boost growth. The global synchronized economic expansion continued during the second quarter, albeit at a slower pace, indicating that it may have entered maturity.
The unemployment rate fell to an 18-year low of 3.8% in May but rose to 4.0% in June as new entrants joined the labor force. The labor force participation rate ended the quarter where it started, at 62.9%. Another solid jobs report in June revealed the addition of 213,000 jobs during the month, with a welcome increase in professional and business services, as well as manufacturing jobs.
The year-over-year headline inflation rate increased from 2.4% to 2.9% during the quarter, with increases in gasoline, shelter and food costs identified as the largest contributors in the June report. During the same period, core inflation, which excludes food and energy, increased from 2.1% to 2.3%, with modest growth in a variety of areas contributing to the overall increase.
June 26, 2018:
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If your company has decided to offer a high deductible health plan, don’t worry, you are not alone. Recent studies show that an increasing number of employers have elected to offer high deductible health plans (HDHP) either to completely replace or be offered in conjunction with a more traditional Health Maintenance Organization (HMO)plan or Preferred Provider Organization (PPO) plan. When sponsoring an HDHP, employers typically offer their employees the ability to contribute to a Health Savings Account (HSA) to help offset the increased deductible associated with the HDHP. In 2015, 24 percent of all workers were enrolled in an HDHP with an HSA savings option. This is a dramatic rise since 2009 when just 8 percent were covered under such plans.
Contributions to an HSA are tax-deferred, like those in 401(k) plans, allowing employees to pay for qualifying medical expenses with pre-tax dollars. If your firm sponsors a 401(k) plan in addition to an HSA, an employee now has two programs to which they can allocate their savings dollars. But, can HSAs have a negative effect on 401(k) savings?
In a perfect world, employees would maximize both plans, as they serve different but equally important roles in an employee’s overall financial picture. Therefore, while there are many differences between HSA and 401(k) plans, by understanding a few key items participants can make informed decisions and elections to optimize both plans for their financial well-being. A few of these key items are outlined in the accompanying table.
Who is eligible to participate in an HSA? To be considered an eligible individual in 2018, an employee must meet the following requirements:
Though many HSAs are funded by employer payroll deductions, an employee may fund their HSA by simply writing a check to their account. Both employers and employees can contribute to an HSA in the same year; however, the combined contribution amount is subject to the IRS’s annual plan contribution limits. Contributions must be made in cash. No contributions of stock or property are allowed.
|Main Purpose:||To fund for qualifying medical expenses that are not covered by insurance.||Retirement funding|
|2018 Maximum Annual Contribution:||$3,450 (Single), $6,900 (Family)||$18,500|
|Catch-up contributions for those age 50 and over:||$1,000||$6,000|
|Investment Account Options:||Invested individually, typically in fixed asset accounts since funds need to be available to pay expenses.||Invested as part of the plan assets. Wide array of bond and equity investments available.|
|Tax-Deferred Earnings Growth:||Yes||Yes|
|Loans to Participants:||No||Yes|
|Tax Consequences of Distributions:||None, if used for qualifying medical expenses under IRC 213(d). If a non-qualifying expense, 20% penalty (up to age 65) plus ordinary income tax.||Tax-free distributions from Roth accounts. 10% distribution for withdrawals (up to age 59.5) plus ordinary income tax.|
|Party responsible for education and compliance:||Individual||Employer|
Making a choice about how to invest their available savings pool is not new for employees. Helping your employees to understand the different purposes of each plan will aid with decisions that affect their financial well-being.