QUESTION: Our firm has at all times shied away from offering recommendation to individuals concerning their private retirement planning. We’re involved, nonetheless, that staff could not have adequate data {and professional} recommendation to make good retirement planning selections, so we want to begin making retirement planning companies accessible. If we do, will these companies be taxable, including to our price and administrative burden?
ANSWER: Retirement planning advantages usually are not taxable to staff in the event that they meet the necessities of the exclusion for “certified retirement planning companies” in Code § 132(a)(7). The federal tax exclusion applies to the truthful market worth of any employer-provided retirement planning companies—no matter any quantity staff contribute to the associated fee. The worth of the companies can be excluded from every worker’s wage base for employment tax functions (e.g., earnings tax withholding and FICA).
In some circumstances, different fringe profit exclusions could apply, however the Code § 132(a)(7) exclusion is the first foundation for excluding retirement planning advantages and—as a result of it’s more likely to be sufficiently broad to cowl the companies you envision—we focus right here on that exclusion.
“Certified retirement planning companies” embrace any retirement planning recommendation or data offered to an worker and the worker’s partner by an employer sustaining a “certified employer plan,” a time period which incorporates tax-qualified plans and sure employer-sponsored IRAs. There are not any laws concerning the exclusion and no additional statutory steering concerning what constitutes “retirement planning recommendation or data,” so the exact scope of the exclusion is just not clear. However we do know that the exclusion consists of, and isn’t restricted to, recommendation and details about the employer’s certified plan; normal recommendation and data on retirement; and details about how the employer’s plan could match into an worker’s total particular person retirement earnings planning. The exclusion doesn’t apply to companies that is likely to be associated to retirement planning, resembling tax preparation, accounting, authorized, or brokerage companies.
The shortage of steering defining excludable retirement planning companies raises some attention-grabbing line-drawing questions. For instance, what’s “retirement” for functions of the exclusion? And when is monetary planning associated sufficient to retirement to be excluded? If, for instance, an worker can not start saving for retirement till excellent money owed are paid, may debt-reduction counseling be a part of an worker’s retirement plan? Earlier than selecting an recommendation supplier, you need to think about whether or not the supplier’s companies will enter these or different grey areas and, if they could, seek the advice of together with your advisors to discern the boundaries of what your organization can deal with as excludable.
Word that the exclusion solely applies to advantages acquired by extremely compensated staff if the advantages can be found “on considerably the identical phrases to every member of the group of staff usually offered schooling and data concerning the employer’s certified employer plan.” For this function, “highly-compensated worker” has the identical definition because it has underneath the retirement plan nondiscrimination guidelines. If you happen to determine to offer the identical retirement planning companies to all plan individuals, this rule shouldn’t be a priority.
Earlier than you design and implement a retirement planning profit, additionally, you will want to grasp how the profit could also be affected by the foundations governing ERISA fiduciaries. These guidelines—which (amongst different issues) set up an important distinction between schooling and recommendation—are complicated and past the scope of this reply, so make sure to seek the advice of authorized counsel about them as you progress ahead.
For extra data, see EBIA’s Fringe Advantages guide at Part XXIV.C (“Certified Retirement Planning Companies”). See additionally EBIA’s 401(ok) Plans guide at Part XXVI.I (“Offering Funding Recommendation to Members”).
Contributing Editors: EBIA Employees.
