Skip to main content

You are here

News > Blog > It’s Not Too Late - But, Don’t Wait!



It’s Not Too Late - But, Don’t Wait!


Some things for plan sponsors to consider before you “give thanks,” light the candles on the menorah, celebrate the Solstice, Nativity, Kwanzaa, or sing Auld Lang Syne.

Health Savings Account (HSA) Capable Health Option – Add December 1st Not January 1st
Are you adding your first HSA-capable health option in 2020? If so, why not add it effective December 1st, 2019? Adding a new option will qualify as a health status change, so workers can change their cafeteria plan election.

Those who enroll December 1st and continue participation throughout 2020 can make a full year’s contribution to the HSA for both 2019 and 2020 - $3,500 (2019 ) $3,550 (2020) single; $7,000 (2019), $7,100 (2020) not single.1

Importantly, participants won’t have to satisfy that qualifying deductible twice. From a plan design perspective, you can offer a choice with a 13 month deductible (applies to expenses incurred during the period December 1st 2019 – December 31st 2020) in the amount of $1,517 (single, calculated as $1,400/12*13) and $3,034 (non-single, calculated as $2,800/12*13) where the option has an out of pocket expense maximum of up to $7,900 (single) and $15,800 (non-single).2

Health Savings Account (HSA) – “Late Contributions”
In addition to regular contributions, IRC §223(b)(3) provides for up to $1,000 per person catch-up contributions. In addition to being covered under an HSA-eligible health option, the individual must have reached age 55 prior to December 31, 2019. Those dollar limits apply to all who have been participating in the HSA-eligible health option for all of 2019 (or, as of December 1, 2019, subject to continuing participation requirements for 2020).

Importantly, if an individual failed to contribute to the Health Savings Account via cafeteria plan pre-tax contributions in 2019, she may still be eligible to make an above-the-line tax deductible contribution to an HSA of her choice prior to April 15, 2020.

Max Out – Deferrals and Contributions
The IRC §402(g) maximum for 2019 is $19,000. The IRC §414(v) “catch-up” contribution maximum for 2019 is $6,000. If your plan accepts non-Roth after tax contributions, the IRC §415(c) annual addition maximum for 2019 is $56,000.

So, except for workers who have been steadily contributing significant amounts and maybe your highest paid workers, it is likely too late to adjust deferrals/contributions from the remaining 2019 paychecks to “max out.”

However, it is not too late to amend your plan for non-highly compensated employees to accept after-tax 401(a) contributions via personal check. If you do, two other options you may want to consider include:

  • Adding an in-plan Roth conversion feature, to move assets in the plan from after-tax 401(a) contributions to Roth 401(k) assets - so that the earnings on those contributions might receive tax free treatment if they otherwise meet the Roth requirements (typically 5 years participation and distribution after age 59 1/2). 
  • Amending the plan to add a true up provision, where such after-tax 401(a) contributions qualify for the same matching treatment afforded to pre-tax 401(k) or Roth 401(k) contributions. 

So, for example, an employee who is eligible throughout 2019, is on the way to achieving an annual income of $50,000 in 2019, but failed to contribute so far in 2019. Assuming the match is 50% of the 1st 6% of pay, he is potentially leaving $1,500 of employer contributions. A plan sponsor could amend the plan to treat 401(a) after tax contributions, whether by payroll deduction or by personal check, as contributions eligible for the match on the same basis as pre-tax or Roth 401(k), made either by payroll deduction or personal check.

I mention after-tax 401(a) contributions for NHCE’s because after tax 401(a) contributions fall within a plan’s ACP discrimination testing. It may be possible to allow some HCE’s to contribute (but separate rules/limits apply where the plan is designed to be a safe harbor plan).

Participants should not be penalized, in terms of the employer matching contribution, where their contributions were not spread evenly throughout the plan year. For calendar year plan year’s, consider adding true-up provisions prior to year-end 2019.

“Catch-Up” Contributions
For a 401(k) or 403(b) plan, the 2019 catch-up maximum is $6,000. Older, highly compensated workers often take advantage of “catch-up” because those contributions are not considered when applying the:

  • IRC §415(c) annual addition, 
  • IRC §402(g) maximum deferral limit, and 
  • IRC § 401(k) Average Deferral Percentage (ADP) test. 

Where the plan accepts catch-up contributions, the only qualification requirement to be eligible is that the participant must reach age 50 prior to year-end 2019. So, in that respect, “catch-up” is kind of a misnomer, because it applies even in situations where the participant has always contributed the maximum permitted.

PSCA’s 61st Annual Survey shows that 88.5% of survey responding companies offer catch-up contributions and 51.1% of those that do, provide a match on employee catch-ups.

It’s Not Too Late, But Don’t Wait!

1IRC §223(b)(8)
2Q&A 24, IRS Notice 2004-50, Accessed 11/7/19 at: See also: IRC §§223(b)(3), 223(b)(8)