tax reform – Saxon – Employee Benefits, Insurance & Wealth

Tax Cut Spurs Employers to Boost 401(k) Contributions

Following one after the other, large employers including Wal-Mart, Aflac and SunTrust have announced significant compensation and benefits changes and attributed them to the Tax Cuts and Jobs Act, which President Donald Trump signed into law in December.

Experts expect hundreds of other employers to join suit.

A new study from global consulting and advisory firm Willis Towers Watson found that about half of 333 large and mid-sized companies polled plan on making changes to their employee benefits, compensation, total rewards and executive pay programs within the next year.

All told, 66% of employers surveyed have either made changes to their benefits packages or are considering making changes. The most common changes are expanding personal finance planning (34%), increasing 401(k) contributions (26%) and increasing or accelerated pension plan contributions (19%), according to WTW.

About 22% of employers say they plan on addressing pay gap issues — a hot topic in the wake of the #MeToo movement and the public firings of top CEOs, editors and TV anchors, politicians and chefs — as part of a broad-based approach to compensation, according to the report.

“The tax reform law is creating economic opportunity to invest in their people programs,” says John Bremen, managing director of human capital and benefits at Willis Towers Watson. “While a significant number have already announced changes to some of their programs, the majority of employers are proceeding to determine which changes will have the highest impact and generate the greatest value.”

Although the Tax Cuts and Jobs Act slashed the corporate tax rate to 21% from 35%, one expert says the decision of where to place those extra savings is going to vary by employer.

“Clearly you have that situation where there has been a tremendous amount of activity,” says Jack Towarnicky, executive director for Plan Sponsor Council of America. “I haven’t seen a comparable situation in the past where somebody announced a particular change and so many others have moved in the same direction. I think it would be as varied as the enterprises themselves where they deploy any corporate reduction.”

Some companies, such as Boeing, Disney and MidWestOne Bank, announced one-time bonuses and student loan repayment contributions, respectively, but said those decisions were not made with consideration to the tax reform.

The heavy lift of raising retirement benefits

Any changes to a company’s employee benefits plan require analysis and strategy to determine the predicted costs, which is more time-consuming than giving every employee a one-time bonus, Towarnicky says.

“There have been a handful of employers that have announced changes in 401(k) savings plans, but it’s clearly dwarfed by the number of employers that announced one-time bonus payments,” he says. “There is a difference between a one-time action and a change to your 401(k) match. It is reasonably predictable if you’ve got a match and you’re going to increase it.”

Employers may also apply those extra savings to voluntary or employer-sponsored benefits, a growing trend for 2018, and wellness initiatives that transcend the benefits package.

Companies with larger, campus-like office buildings are beginning to invest in bike trails around the area and ergonomic work stations, says Catherine O’Neill, senior healthcare consultant at Willis Towers Watson.

Employers are “trying to blend their work environment with their benefits strategy or wellness strategy to make it more successful,” O’Neill says.

While the changes will remain to be seen, Towarnicky warns employers faced with reinvesting their tax savings that those rates may not remain in effect indefinitely.

“Too many times, particularly when it comes to retirement, people develop expectations,” he says. “Any reductions [to benefits or compensation] have a negative impact on employee relations.”

Prospect for Tax Reform Remains Unclear as Mounting Priorities Compete for Attention

Has the news surrounding tax-reform left you worried about your employee benefits program? Check out this great article by Kathleen Coulombe from SHRM on what you should know about the potential over haul of our tax code and what it means for your employee benefits program.

As efforts to repeal and replace the Affordable Care Act continue to plod along in Congress, House and Senate tax writers have been working with the Trump administration to find a way forward on tax reform.

Hearings continue to take place, most recently last week with both the House Ways and Means Tax Policy Subcommittee and the Senate Finance Committee looking at a path forward on tax reform. One area Members of Congress are reviewing is the tax-favored status of employer-sponsored retirement and welfare benefits. The House Ways and Means Tax Policy Subcommittee hearing focused on individual reform, which frequently touched on retirement security. One of the key issues discussed during the hearing was shifting the way individuals plan and save for retirement from a traditional pre-tax 401(k) account to an after-tax Roth model (aka "Rothification"). While hearing panelists noted that moving individuals saving for retirement to an after-tax 401(k) model would generate additional tax revenue for the U.S. Government, it could also disrupt the current retirement system.

SHRM believes a comprehensive employer-sponsored benefits package is a key component that employers use to attract and retain top talent. Two of the most widely utilized benefits are employer-provided health care and retirement plans. SHRM believes tax incentives should be used to expend access to and participation in health care and retirement savings plans.

The SHRM-led Coalition to Protect Retirement has expressed concerns to congressional members about moving individual retirement to an after-tax approach, as we believe it will undermine savings for retirement.

While tax reform legislation is not expected to be released until the fall, a set of principles will be released prior to the House adjourning for its August recess.

In the absence of a comprehensive tax reform plan moving ahead, there remains the strong possibility that a bill aimed strictly at tax cuts could be an alternative and could move as soon as members return to Washington in early September.

Aside from charting the course on tax reform, members must also fund the government for FY2018 by September 30 and increase the debt ceiling limit. While the House Budget Committee approved a FY18 budget resolution along party lines that contained tax reconciliation instructions, to move forward the resolution will have to pass both chambers and be signed by the president.

The resolution also requires congressional committees in both the House and Senate to achieve specific deficit reduction levels for 2018-2027 and submit recommendations by October 6, 2017. Given the challenges the budget resolution is facing and the fact that the House and Senate have not passed any of the 12 appropriations bills necessary to fund the government, a short-term continuing resolution will need to be enacted by October 1 to keep the federal government open and it could include an increase in the debt ceiling.

See the original article Here.

Source:

Coulombe K. (2017 August 1). Prospect for tax reforms remains unclear as mounting priorities compete for attention [Web blog post]. Retrieved from address https://blog.shrm.org/blog/prospect-for-tax-reform-remains-unclear-as-mounting-priorities-compete-for