How does ObamaCare affect a 401(k) plan?

[Peter Gulia]

I'm making a list of the ways in which the Affordable Care Act affects the administration of a 401(k) plan. I'll bet that BenefitsLink mavens can explain things that I wasn't smart enough to see. Let's see who has the most ideas.

[rcline46]

My guess is that the coming increase in the cost of health insurance combined with the loss of personal deductions for the insurance will call a reduction in contributions. This reducuction may be significant, percentage wise, at lower contribution levels. My guess would be in the $5 to $10 range per pay period as people try to maintain their level of take home pay.

[david rigby]

Agreed, but I suggest the reduction in contributions will be two-sided: both EE and ER.

[Peter Gulia]

Smart points awarded to rcline 46 and david rigby!

Let's see who can come up with more ways in which the Affordable Care Act affects the administration of a 401(k) plan.

[leevena]

I am a health guy and I don't how this affects retirement, so go easy on me. lol

Employers with 50 or more are now requried to define 30 hours or more per week as a full timer. My guess is that many employees will now begin to see their hours worked reduced, with employers targeting a safe level of hours to be 25 or so. My guess is that this will reduce the number of employees eligible for retirement benefits.

Also, I see an uptick in the number of outside consultants or independent contractors being used.

[shERPA]

At the margin there will be fewer 401(k) plans. As noted, there will be less funds available on both the ER and EE side for 401(k) contributions. EEs will choose an immediate benefit (healthcare) over a future benefit (retirement).

Also the sheer administrative burden imposed by Obamacare, combined with the growing administrative burden of administering a 401(k) plan, plus 1100 new DOL investigators, some ERs will conclude their 401(k) plans are no longer worthwhile and others will arrive at this conclusion before ever setting them up.

[MWeddell]

Legislators, regulators, employers and employees all have been spending more time addressing health care changes, which to a mild extent probably means less time on retirement issues and other employee benefit concerns. We've probably been coasting with fewer 401(k) plan changes than would otherwise be the case. (Most employers would say that less government action is a good thing.)

[david rigby]

Let's not forget about the future explosion in healthcare costs. While some people continue to believe the "Affordable Care Act" (if ever there was a misleading title, that's it), those people don't live in the real world. The tax dollars needed to pay for the healthcare promises will grow dramatically; Congress will look at the "tax spending" of qualified plans. Most likely, the first change will be lower deductions. Remember how most employees saw decreases in benefits when the 1993 changes restricted a few (ie, the decision-makers)? Secondly, they will seek ways to tax more of the build-up of QP assets. Eventually, they will wake up and stop the growth of tax-free accumulation in Roth IRAs.

[Bill Presson]

I am a health guy and I don't how this affects retirement, so go easy on me. lol

Employers with 50 or more are now requried to define 30 hours or more per week as a full timer. My guess is that many employees will now begin to see their hours worked reduced, with employers targeting a safe level of hours to be 25 or so. My guess is that this will reduce the number of employees eligible for retirement benefits.

Also, I see an uptick in the number of outside consultants or independent contractors being used.

I think this will actually increase the number of people eligible, though perhaps not participating, in a 401(k). Since, in the retirement world, full time is approximately 20 hours per week, this might indicate a move from two people working about 80 hours per week to three people working about 80 hours per week. Businesses that had been in the 80-95 employee range, might suddenly have 120+ and now have to get an audit.

Yuck. I hate thinking about this.

[Mike Preston]

And there are those that will move heaven and earth to restructure their businesses so that each separate operating entity will have less than 50 employees. This actually means more plans for me!

[leevena]

And there are those that will move heaven and earth to restructure their businesses so that each separate operating entity will have less than 50 employees. This actually means more plans for me!

this is very difficult to do without losing control of the companies they restructure. what I believe will happen to many of the smaller groups that are over 50 lives, is that they will begin to limit the number of full-timers and increase the number of employees who work below the threshold for coverage. Since the key hours number is 30, my guess is that they will start to target 25 as a maximum number of hours per.

[Peter Gulia]

On Mike Preston's point, now might be an opportune time for eb practitioners to relearn the rules of Internal Revenue Code section 414(b), ©, (m), and (o). IRC section 4980H©(2)©(i) applies those rules to determine the employer on which to count whether there are or were 50 FTE employees.

[Mike Preston]

FGC, when I said re-structure, I meant re-structure. They have done the analysis and find it is cheaper to "give away" 20.01 percent of each entity (to an otherwise long term, deserving manager who will no doubt have to pay for it in compensation adjustments - thereby keeping the cost somewhat in check). Last I checked if the entities are not in the service industries (think about a group of Ace Hardware stores) then as long as there isn't an over-riding management entity you are pretty much free and clear of 414(b),©,(m) and (o), aren't you?

[Peter Gulia]

Mike Preston, by suggesting that practitioners relearn the rule, I didn't mean to suggest that anyone or anything is incorrect. Rather, I suggest that being prepared to do the analysis, for the kind of planning you describe a demand for, is a way that one might get a little fee-paying biz.

[jpod]

Relearn? If 414-related questions aren't already at or near the top of any practioner's list when he/she first talks to a new or prospective client, he/she shouldn't be in this line of work.

[Peter Gulia]

jpod, thank you for your observation. You likely know much more than I do about the relevant practice. Retirement plan fiduciaries ask for my advice about non-tax fiduciary questions; and almost never ask me to think about tax-qualification issues.

[jpod]

I think the vast majority of people who participate on these boards (maybe 99.999999999%), lawyers and non-lawyers, are directly or indirectly involved in advising plan sponsors on matters where 414 rules are quite relevant.