Save even more in 2023: IRS releases 2023 annual limits for retirement plans 

Employers that sponsor tax-qualified retirement plans should consider any necessary adjustments to plan administrative procedures and update their participant notices.

Seyfarth Synopsis: The IRS just announced the 2023 annual limits that will apply to tax-qualified retirement plans. For a second year in a row, the IRS increased the annual limits, allowing participants to save even more in 2023. Employers maintaining tax-qualified retirement plans will need to make sure their plans' administrative procedures are adjusted accordingly.

In Notice 2022-55, the IRS announced the various limits that apply to tax-qualified retirement plans in 2023. The "regular" contribution limit for employees who participate in 401(k), 403(b) and most 457 plans will increase from $20,500 to $22,500 in 2023. The "catch-up" contribution limit for individuals who are or will be age 50 by the end of 2023 will increase from $6,500 to $7,500 in 2023. Therefore, if participants are or will be age 50 by the end of 2023, participants may be eligible to contribute up to $30,000 to the ir 401(k) or 403(b) plan in 2023.

The maximum amount that may be contributed to a defined contribution plan will increase from $61,000 to $66,000 in 2023. Additionally, the maximum annual compensation that may be taken into account under a plan will increase from $305,000 to $330,000 for 2023. For individuals investing in individual retirement accounts (IRAs), the annual contribution limit will increase from $6,000 to $6,500 for 2023 (for those who are catch-up eligible, this limit will increase from $7,000 to $7,500 for 2023).

The Notice also includes several other notable retirement-related limitation changes for 2023, including the dollar limitation on the annual benefit under a defined benefit plan, which increases from $245,000 to $265,000; the dollar limit used to determine a highly compensated employee, which increases from $135,000 to $150,000; and the dollar limit used when defining a key employee in a top-heavy plan, which increases from $200,000 to $215,000.

Individuals should check their plan contribution elections and consult with their personal tax advisor before the end of 2022 to make sure that they take full advantage of the contribution limits in 2023. Given the numerous changes, employers who sponsor a tax-qualified retirement plan should consider any necessary adjustments to plan administrative procedures and update their participant notices to ensure proper administration of the plan in 2023

Employers who sponsor defined benefit pension plans (e.g., cash balance plans) should review the new limits in the IRS Notice and make any necessary adjustments to plan administrative/operational procedures.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Quiet Firing: What Employers Need to Know Before Engaging in the Trending Form of ‘Discipline’

“Quiet firing” refers to an employer who, instead of terminating an underperforming employee, simply reduces (or eliminates) the employee’s hours and/or responsibilities until the employee voluntarily quits.

“For every action there is a greater or equal reaction.”

Newton's Third Law of Motion appears to be playing out in real time in the employment law context. In response to the action of “quiet quitting,” where employees reduce their efforts to perform only the bare minimum at their jobs instead of actually quitting, some employers have begun to react by engaging in “quiet firing.”

“Quiet firing” is now a trending term which refers to an employer who, instead of terminating an underperforming employee, simply reduces (or eliminates) the employee’s hours and/or responsibilities until the employee voluntarily quits. Because this maneuver relies on the employee's dependance on hourly wages, it typically only comes into play for hourly, non-salaried employees who would feel the immediate effects of a reduction in hours. In theory, the employee will quickly realize that they cannot afford to continue their employment in the reduced capacity and will either find alternate work elsewhere or conform to the employer's expectations.

There are several reasons why an employer might “quiet fire” a problematic employee instead of terminating them. First, the manager or supervisor wishing to terminate the employee may want to avoid a confrontation. Second, the manager or supervisor may prefer this method to allow them not to feel negatively about the termination because the onus is now on the employee to end the employment relationship. Finally, some employers may see this as an opportunity to avoid unemployment compensation claims because employees who resign normally do not qualify for benefits.

Despite what may appear to be beneficial to employers who “quiet fire” employees, employers should resist the urge to utilize this tactic as the potential consequences outweigh any perceived benefits. For example, reducing an employee’s hours very well could be considered an adverse employment action should the employee file a complaint of discrimination or retaliation. Moreover, even if the hours reduction is determined not to be an adverse employment action in and of itself, it could form the basis of a constructive discharge claim, particularly if the employee’s scheduled hours are eliminated completely. At the very least, a reduction of hours may be used to demonstrate disparate treatment between employees and serve as anecdotal evidence to prove discrimination.

What should employers do? Although it may sound tempting, employers should not react to the quiet quitting trend by resorting to quiet firing problematic employees. Instead, employers should continue to use traditional methods to address problematic behavior including coaching and progressive discipline. Should those efforts prove unsuccessful, managers and supervisors need to be ready to have the difficult conversation necessary to terminate the employee. Not only will this protect the employer’s reputation as a good workplace and provide goodwill for the business, but it will also lead to a happier, more stress-free workplace because employees will not have to fear that they may be quiet fired without warning or the opportunity to improve their performance. Finally, it will save time and money in the long run should a terminated employee file a charge claiming discrimination or retaliation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

IRS issues 2023 adjusted limits for various benefits

In Rev. Proc. 2022-38, the IRS provides a variety of inflation-adjusted figures for 2023, including figures for cafeteria plans, long-term care, medical savings accounts (MSAs), and transportation fringe benefits.

Cafeteria plans. For the taxable year beginning in 2023, the dollar limitation under Code Sec. 125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements increases to $3,050. If the cafeteria plan permits the carryover of unused amounts, the maximum carryover amount is $610.

Long-term care. For taxable years beginning in 2023, the limits under Code Sec. 213(d)(10) for eligible long-term care premiums deductible as “medical care,” based on the insured’s age before the close of the taxable year, are as follows:

  • for those age 40 or younger, the limit is $480;

  • for those older than age 40 but not older than age 50, the limit is $890;

  • for those older than age 50 but not older than age 60, the limit is $1,790;

  • for those older than age 60 but not older than age 70, the limit is $4,770; and

  • for those older than age 70, the limit is $5,960.

In addition, for calendar year 2023, the per-day limit applicable to aggregate payments for per diem-type long-term care insurance contracts and amounts received by a chronically ill individual under a life insurance contract under Code Sec. 7702B(d)(4) is $420.

MSAs. For self-only coverage in 2023, a high-deductible health plan (HDHP) is defined in Code Sec. 220(c)(2)(A) as a plan that has an annual deductible that is not less than $2,650 and not more than $3,950 ($2,450 and $3,700 in 2022) and annual out-of-pocket expenses that do not exceed $5,300 (up from $4,950 in 2022). For family coverage in 2023, an HDHP has an annual deductible that is not less than $5,300 and not more than $7,900 (up from $4,950 and $7,400 in 2022) and annual out-of-pocket expenses that do not exceed $9,650 (up from $9,050 in 2022).

Transportation. For the taxable year beginning in 2023, the monthly limitation under Code Sec. 132(f)(2)(A), regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass, increases to $300. The monthly limitation under Code Sec. 132(f)(2)(B), regarding the fringe benefit exclusion amount for qualified parking, also increases to $300.

QSEHRA. For tax years beginning in 2023, in order to qualify as a small employer health reimbursement arrangement (QSEHRA) under Code Sec. 9831(d), the total amount of payments and reimbursements for any year cannot exceed $5,850 (up from $5,450 in 2022) ($11,800 for family coverage, up from $11,050 in 2022).

In the wake of Hurricane Ian, employers are reminded yet again that they should be prepared for any natural disaster as well as the more run of the mill inclement weather. Employers should review their policies now and think about how those policies might need to be amended with the workplace changes that have taken place since the beginning of the COVID-19 pandemic. Any good policy will address, at a minimum, employee safety, a communications plan, and compensation.

Safety

While employers have an obvious interest in keeping their business running, no employer wants to see an employee injured – or worse – because the employee felt obligated to come to work in unsafe conditions. Both from a productivity and culture standpoint, it is not usually in the employer’s best interest to take a hard line with employees who refuse to travel on dangerous roads, or when there are severe service disruptions on public transportation. In addition, some employees may be caretakers of children who will be affected by school or daycare closings. These factors and more must be considered when preparing, communicating and enforcing any natural disaster or inclement weather policy.

Communications Plan

Well before a storm or natural disaster strikes, employers should have in place a plan for communicating with employees, and that plan should consider the possibility of prolonged power outages. Employers should set up an employee notification system, which uses voice, email, text or other technology, in the event of a company closure, or provide a recorded message for employees to access during weather or other emergencies. Employees should be expected to contact their supervisor or another company representative if the office is open but an employee cannot make it to work during inclement weather, and that expectation should be communicated in writing.

Compensation

In a perfect world, every business could afford to continue paying employees their full wages even if the company must close due to hurricanes, blizzards, floods, wildfires or some other natural disaster. The world is not perfect, however, and employers should be aware of their rights and obligations when it comes to paying employees during a weather event.

Under the federal Fair Labor Standards Act (FLSA) employers are required to pay nonexempt employees only for actual hours worked. Employers can require nonexempt employees to use any accrued paid time off or take an unpaid day in the event that they cannot come to work during a weather or other event. If a nonexempt employee has no remaining paid time off, the employer is not required to pay the employee for days that the employee did not work. New Jersey (but not Pennsylvania or Delaware) has adopted a reporting for work law that requires employers to pay employees for at least one (1) hour at their applicable wage rate if they show up or report for duty at the request of their employer, except when the employer has made available to the employee the minimum number of work hours agreed upon by the employer and employee prior to the employee beginning work on the day in question.

By contrast, except in limited circumstances, an employer must pay an exempt employee when he or she works any portion of a workweek, including situations of inclement weather and natural disaster. Employers can require exempt employees to use any accrued paid time off when the office is closed, but, if an exempt employee has no remaining paid time off, the employer must pay the exempt employee for a partial workweek closing. The only instances in which an employer is permitted to not pay exempt employees because of inclement weather or a natural disaster are: when a business closes for an entire week and the employer is certain that the exempt employee performed no work during that week; and when the business remains open during inclement weather and an exempt employee chooses to take the entire day off for personal reasons.

Of course, as we have learned over the last several years, many exempt (and nonexempt) employees can work effectively from home. To the extent they can, therefore, employers should plan for inclement weather or natural disasters that may affect the ability of some employees to come to the office and communicate expectations around, for example, taking laptops home to make sure employees can continue to work even when roads are not passable. Employers still should keep in mind, however, other issues that can affect an employee’s ability to work remotely, such as childcare challenges and power or internet outages.

Additional Issues to Keep in Mind

FMLA: Employers must remember their obligations under the Family and Medical Leave Act (FMLA) to provide leave to those qualifying employees who suffer a serious health condition during any natural disaster or inclement weather. This FMLA requirement also may extend to the employee’s need to care for a spouse, parent, or child suffering a serious health condition or medical emergency during that time. In addition to the federal FMLA, some states have unique family leave requirements that need to be followed as well.

Military Leave: Employees may be members of the National Guard or volunteer responders and may be called up for duty during a natural disaster. Job protections are in place for these employees, and some state laws may be implicated to address unique situations.

If you have questions about a current natural disaster/inclement weather policy, or you are thinking about adopting one in your workplace, you should consult with experienced human resources professionals and/or labor and employment counsel. For all MEA members, the Hotline is available to provide this assistance. For MEA Essential and Premier members, a Member Legal Services attorney are available for additional consultation.

Amy G. McAndrew, Esquire
Director of Legal and Compliance Services
MidAtlantic Employers' Association
800-662-6238

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