2013 Limits and Other Looming Year-End Matters

 
Benefits Brief
November 6, 2012

IRS Announces Key 2013 Indexed Limits

The IRS has recently announced the various qualified plan related limits for 2013. The following table includes the more widely used limits relating to qualified plans and includes both the 2012 and 2013 amounts.


2012

2013

Compensation limit

$250,000

$255,000

Section 415(b) limit

$200,000

$205,000

Section 415(c) limit

$50,000

$51,000

Section 402(g)/401(k) limit

$17,000

$17,500

Catch-up contributions

$5,500

$5,500

HCE threshold

$115,000

$115,000

Officer (top heavy) threshold

$165,000

$165,000

Taxable Wage Base

$110,100

$113,700

 

This Year’s Trap for the Unwary: Year-End Deadline to Amend Release Provisions

Employment, severance and change in control agreements often contain provisions requiring a service provider (employee) to provide a release of claims against the service recipient (employer) in order to receive a payment. In 2010, to the surprise of many practitioners, the IRS stated that this common practice potentially violates Internal Revenue Code Section 409A because it impermissibly gives the employee discretion over the timing of payment, based on when the employee delivers an executed release to the employer. (For more information on Code Section 409A, including a description of how arrangements can be exempt from or compliant with its provisions, please see our Question-and-Answer Guide to Code Section 409A.)

Example: Ed is terminated on December 15, 2012. Under his 2009 employment agreement, he is entitled to an $800,000 payment on separation from service (for whatever reason), payable in installments over a 12-month period. No payment will be made unless he timely executes a release. Because on these facts Ed has discretion over whether the payment stream will begin in 2012 or 2013, under IRS guidance, payments may not satisfy Code Section 409A.

For nonqualified deferred compensation arrangements subject to Code Section 409A and in existence as of December 31, 2010, employers may take advantage of certain transitional relief offered by the IRS if the arrangements are amended by December 31, 2012 to remove employee discretion with respect to the timing of a release. The correction generally requires hard-wiring when the payment will occur, without regard to when the employee executes the release. Although arrangements that are exempt from Code Section 409A are not required to address this issue, we nevertheless recommend reviewing all arrangements that have release provisions because the terms of a release may inadvertently trigger Code Section 409A.

If you have questions about release provisions or whether any particular arrangement needs to be amended, please contact a member of the Employment and Benefits Practice Group.

Qualified Plan Year-End Reminders

There is an ever growing list of annual notices that must be distributed in connection with the routine operation of qualified plans. That list includes the following:

And, for the first time, plan administrators of participant-directed plans (such as 401(k) plans) are required to provide quarterly fee disclosures reflecting the fees and expenses actually deducted from the accounts of participants and beneficiaries during the third quarter of 2012 no later than 45 days after the end of the quarter (November 14, 2012 for calendar year plans). For more information on the new fee disclosure rules, please see our advisory

If you have questions about these or other periodic reporting requirements, please feel free to contact a member of the Employment and Benefits Practice Group.