Fiscal Cliff Deal Includes Employee Benefits Provisions | Practical Law

Fiscal Cliff Deal Includes Employee Benefits Provisions | Practical Law

On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012. While most of the legislation addresses individual and business tax extensions and rate increases, several provisions relate to employee benefits, including Roth conversions in 401(k) plans, employer-provided mass transit and parking benefits and education assistance.

Fiscal Cliff Deal Includes Employee Benefits Provisions

Practical Law Legal Update 7-523-4062 (Approx. 3 pages)

Fiscal Cliff Deal Includes Employee Benefits Provisions

by PLC Employee Benefits & Executive Compensation
Published on 07 Jan 2013 • USA (National/Federal)
On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012. While most of the legislation addresses individual and business tax extensions and rate increases, several provisions relate to employee benefits, including Roth conversions in 401(k) plans, employer-provided mass transit and parking benefits and education assistance.
On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 (Act), legislation that prevents certain automatic tax increases, the imposition of spending cuts and the resulting decline in the country's budget deficit commonly known as the "fiscal cliff." While most of the Act addresses individual and business tax rates and credits, several provisions affect employer-provided employee benefits, including:
  • In-plan Roth Conversions. Beginning January 1, 2013, applicable retirement plans (such as 401(k) plans and 403(b) plans) that include a Roth contribution option may allow a participant to convert all or a portion of his plan account to a Roth account within the same plan (called an in-plan rollover conversion), regardless of whether the amount is actually distributable under the terms of the plan. Previously such conversions were only allowed on occurrence of certain distributable events (such as termination of employment or reaching age 59-1/2) (see Practice Note, Roth 401(k) Plans and Standard Clause, Plan Language, In-plan Roth Rollover Contributions for 401(k) Plans).
  • Mass Transit and Parking Benefits. The Act extends parity for the income exclusion for employer-provided mass transit and parking benefits (which had previously expired in December 2011) through December 31, 2013.
  • Exclusion for Education Assistance. By striking the sunset under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the Act makes permanent the exclusion for employer-provided education assistance benefits (up to $5,250).
  • Adoption Assistance. The Act also makes permanent changes to the adoption credit and exclusion for certain adoption expenses.
  • CLASS Program. The Act formally repeals the Community Living Assistance Services and Supports Act (CLASS Act), a provision added under the Affordable Care Act (ACA) that would have permitted employees to buy insurance providing cash benefits for disability or long-term care (such as nursing home or in-home assistance). In October 2011, the Obama administration, citing actuarial solvency concerns, announced that the CLASS Act would not be implemented.