Action Required for Maine School Units' 403(b) and 457(b) Plans; ACA Update

The IRS has released regulations requiring school units with 403(b) plans and/or 457(b) plans offering hardship distributions to take immediate action. Also, on a brighter note, the ACA’s highly-controversial so-called “Cadillac Tax” has been repealed. Important information all school officials need to be aware of with respect to these developments follows:

Mandatory 403(b) and 457(b) Plan Amendments : The IRS recently finalized regulations requiring all school units that sponsor 403(b) and/or 457(b) retirement plans that allow for hardship distributions to amend their plans and implement certain changes to hardship distribution administration. Under the new regulations, when seeking a hardship distribution from a 403(b) plan or 457(b) plan, the employee must certify in writing to the school unit that the employee does not have other cash “reasonably available” to satisfy the hardship. In addition, school units are now prohibited from suspending employee’s 403(b) and 457(b) salary deferrals after receiving a hardship distribution. These changes will require school units to change their administration of hardship distributions and to amend their 403(b) and 457(b) plan documents immediately or risk disqualifying the plans.   

Cadillac Tax Repealed : On a brighter note, just last month, the President signed into law the “Further Consolidated Appropriations Act, 2020” (the “Act”), which among other things, contained a full repeal of the highly controversial so-called “ Cadillac Tax ” on high-cost health plans. The law was previously scheduled to take effect January 1, 2022 and presented particular difficulties for school units when negotiating long-term employment contracts. 

ACA Play or Pay Penalties and IRS Reporting Still Applies : School officials should note that notwithstanding the repeal of the Cadillac Tax and recent court challenges, the ACA’s so-called “Play or Pay” Penalties on large school units that do not offer full-time employees affordable health insurance coverage, and the associated IRS Form 1095-C reporting, continue to apply. In addition, the IRS has recently stepped up enforcement of the Play or Pay rules and Form 1095-C reporting penalties. School units should ensure that all 2019 Form 1095-Cs are accurately and timely remitted to the IRS by the appropriate deadlines (2019 Forms 1095-C due to employees by March 2, 2020 and to the IRS by February 28, 2020, or March 31 if filing electronically).  

School Units with questions should contact Chris Stevenson .
Christopher G. Stevenson
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