Earlier this month we notified you that that under the American Taxpayer Relief Act of 2012—i.e., the “fiscal cliff legislation”—Congress extended the ability of employers to pay or reimburse an employee on a tax-free basis for up to $5,250 in educational assistance (which does not have to be job-related) under a written plan of the employer. We now summarize below some other notable employee benefits and compensation-related provisions contained in the fiscal cliff legislation.

Expansion of In-Plan Roth Conversion Opportunity for Defined Contribution Plans. The fiscal cliff legislation offers a new opportunity for defined contribution plans (such as 401(k) and 403(b) plans) to enable participants to make an in-plan conversion to a Roth account. Prior to the new law, defined contribution plans could only offer plan participants the opportunity to convert to a Roth account within the plan if the participant experienced a distribution event in which the amounts to be converted were an eligible rollover distribution. Under the fiscal cliff legislation, a defined contribution plan may now permit any vested amounts in the plan to be converted to a Roth account within the plan, regardless of whether the amounts are currently distributable. To take advantage of this new rule, a defined contribution plan must permit (or be amended to permit) Roth contributions to the plan generally and be amended to provide for this broad in-plan Roth conversion.

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Topics:  Adoption, American Taxpayer Relief Act, Defined Contribution Plans, Employee Benefits, Fiscal Cliff, Income Taxes, IRA, Payroll Taxes, Roth Conversions

Published In: Labor & Employment Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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