At this point, benefits pros know the “fiscal cliff” deal is going to impact workers’ paychecks. But there are a number of other benefits implications you may not be aware of — but should be.
When the American Taxpayer Relief Act (ATRA) was passed at the zero hour, the focus was on the fact that Congress averted significant tax increases for the majority of Americans.
Under the radar
But the law also included a number of changes that will impact employee benefits this year. Here are three of the most significant.
1. An end to education-assistance uncertainty. Thanks to the ATRA, employers can once again provide their workers with up to $5,250 in tax-free undergraduate and graduate educational assistance each year. The fiscal cliff deal not only renewed the employer educational assistance benefits, it made them permanent this time. This should help firms that have had to deal with the uncertainty of these benefits expiring and being reinstated (even retroactively months after the expiration date) on a number of occasions.
2. Greater flexibility with Roth 401ks. If your company offers a Roth 401k — as well as a traditional one — employees can now convert their traditional 401k into a Roth 401k at any time. Previously, employees were only able to make this type of conversion if they retired, changed jobs or were at least 59 and a half years old.
This change was included as part of the ATRA because it is believed many individuals will take advantage — and it will generate tax revenue as a result. That’s because when an employee converts a traditional 401k to a Roth version, he or she must pay income taxes on the converted amount at the time of conversion.
3. Mass-transit benefit increases. Under the ATRA, the max pre-tax contribution employees can make to mass-transit expenses jumps to $240 per month — up from $125. This increase will expire on Dec. 31, 2013 — unless Congress decides to extend it again. (Note: This provision can be implemented retroactively to Jan. 1, 2012, however, it could require a significant amount of administrative work for HR and benefits.)