Maximizing Benefit Flexibility: What a Recent IRS Private Letter Ruling Means for Employers
Nate Moody, CPFA – RETIREMENT ADVISOR, PARTNER
November 2024
A recent 2024 IRS Private Letter Ruling gave an employer the ability to give employees greater flexibility in how they use non-elective employer 401(k) contributions. Their employees can now decide how to direct these contributions toward different tax-advantaged benefits, including 401(k) plans, Health Savings Accounts (HSAs), retiree Health Reimbursement Arrangements (HRAs), and student loan repayment programs.
This flexibility empowers employees to align benefits with their financial priorities, enhancing recruitment and retention strategies for employers. However, organizations must ensure compliance with nondiscrimination rules, tax regulations, and administrative processes to implement these changes effectively.
Key Benefit Allocation Options
401(k) Plans: Contributions grow tax-deferred, supporting long-term savings.
Health Savings Accounts (HSAs): Triple tax advantages (pre-tax contributions, tax-free growth, tax-free withdrawals for qualified expenses) make HSAs an attractive option for employees managing current or future healthcare needs.
Retiree HRAs: Funding these accounts helps employees prepare for post-retirement healthcare expenses, promoting long-term financial security.
Student Loan Repayments: Addressing student debt issues directly supports employees’ financial wellness, fostering engagement and retention.
Compliance Considerations
Nondiscrimination Testing: Ensure your contributions meet IRS testing standards under Sections 401(a)(4) and 410(b) to avoid favoring highly compensated employees.
Constructive Receipt Rules: To prevent contributions from being classified as taxable income, employees must make irrevocable elections before receiving any funds. These elections require precise planning and documentation.
Vendor Coordination: Offering multiple benefit options requires seamless integration across systems and vendors to avoid administrative issues. Employers will need robust coordination to ensure smooth plan operation.
Communication Strategy: Clear and proactive messaging about available options is critical. Employers should provide targeted education through workshops, online tools, and personalized counseling to help employees make informed decisions.
Strategic Benefits for Employers
Talent Acquisition and Retention: Employees increasingly expect benefits tailored to their financial needs. Providing multiple options demonstrates a commitment to employee well-being and helps attract top talent.
Increased Plan Participation: Offering diverse benefit options encourages higher participation in 401(k) plans and other savings programs.
Enhanced Financial Wellness: Programs such as student loan repayment ensure employees feel supported in both their short-term and long-term financial goals, leading to increased engagement and productivity.
Lebel & Harriman’s Expertise in Navigating the New Ruling
This new IRS ruling offers employers a unique opportunity to meet employees where they are, delivering financial flexibility while improving engagement. At Lebel & Harriman Retirement Advisors, we specialize in helping plan sponsors adapt to regulatory changes with confidence.
If you’re interested in having a conversation about how best to allocate your benefit dollars and identify opportunities to enhance your benefit offerings, please reach out to us today!
Securities Disclosure: Securities offered through Valmark Securities, Inc. Member FINRA, SIPC. Investment Advisory Services offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor. | 130 Springside Drive, Suite 300, Akron, OH 44333-2431 | Telephone: (800) 765-5201 | Lebel & Harriman, LLP and Lebel & Harriman Retirement Advisors are separate entities from Valmark Securities, Inc. and Valmark Advisers, Inc.\
All information article is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. The material is for informational purposes only and is not intended provide specific advice or recommendations for any individual nor does it take into account the particular investment objectives, financial situation, or needs of individual investors. This information is not intended for use as tax or legal advice. Persons should consult with their own tax or legal advisors for advice.
