News You Can Use! for Advisors and CPAs

Earlier this year, the IRS issued guidance via Private Letter Ruling 202434006, which highlights significant flexibility for employers in structuring its benefit plans. The ruling paves the way for employers to offer tailored benefits packages that cater to individual employee preferences, fostering a more customized and supportive work environment.

Key takeaways for your clients include:

Customizable Employer Contributions

Employers can now provide employees the option to allocate a discretionary contribution (up to a set limit) across multiple benefits programs, including:

• 401(k) Plans
• Retiree Health Reimbursement Arrangements (HRA)
• Health Savings Accounts (HSA)
• Educational Assistance Programs (including student loan repayment)

Irrevocable Annual Elections

Under the program, employees would make an annual irrevocable election on how they wish to allocate the employer contribution, providing flexibility without impacting the tax-favored status of these benefits and allowing employees the ability to change their election as their personal needs change.

Non-Taxable Benefit Flexibility

This ruling confirms that the election doesn’t compromise the tax-advantaged status of the selected programs, and the amounts would not be treated as a 401(k) deferral (but rather would be treated as an employer contribution).

Tailoring to Individual Needs

The ability to direct contributions across multiple benefit programs allows employers to offer a benefits package that better meets the individual needs of employees, whether they prioritize retirement savings, healthcare, or educational assistance.

In conclusion,

This ruling provides a strategic opportunity for employers to enhance their benefits packages, offering more personalized and meaningful support to employees while maintaining compliance with IRS regulations. As many employers may be intrigued by this idea, now is a great time to coordinate with your TPA partner to discuss potential strategies for clients.