United States: Tax Reform Results In Only Minor Changes For Retirement Plans


The Tax Cuts and Jobs Act made significant changes to the tax code and will have a significant impact on businesses and individual taxpayers. However, although initial proposals included potentially significant changes to employer-sponsored retirement plans, the impact of the final bill on employer sponsored retirement plans will be relatively minor.

In Depth

The Tax Cuts and Jobs Act (the Act), which was signed into law on December 22, 2017, represents the most sweeping overhaul of the tax code in decades and will have a significant impact on businesses and individual taxpayers. However, there are no major changes to the structure, type or amount of benefits that may be provided by employers through their tax-qualified retirement plans under the new law. Early proposals suggested that Congress might attempt to significantly reduce the limit on employee pre-tax deferrals to employer-sponsored plans, but the Act does not reduce contribution, benefit or compensation limits in 401(k) plans, does not cap wages on pre-tax catch-up contributions, and does not change the rules for pre-tax contributions to 403(b) and 457(b) plans.

In addition, the Act does not expand the in-service withdrawal rules available to defined benefit and money purchase plan participants, and does not make permanent the nondiscrimination testing relief for closed defined benefit plans previously established by Notice 2014-5 and extended earlier this year, which were proposals approved by the House in an early version of the Act. Similarly, the Act does not make changes to hardship withdrawal rules, such as the elimination of the requirement that employers suspend employee contributions under 401(k) plans for the six month period following a hardship withdrawal.

However, the Act does include a handful of smaller changes that will impact retirement plan administration, described more fully below.

Rollovers of Loan Repayments

The Act includes relief that extends the period for rolling over a loan offset. Retirement plan loans typically become immediately due and payable when a participant terminates employment. If the loan is not repaid, the plan offsets the loan against the value of the participant's account. Currently, this type of loan offset may be rolled over by a participant tax-free if he or she makes an equivalent contribution to another tax-qualified plan or individual retirement account (IRA) within 60 days of the date of the offset. Beginning in 2018, the Act extends this period, from the current 60 days to the due date (including extensions) for the affected participant's tax return for the year in which the offset occurred.

Recharacterization of Contributions as Roth or Pre-Tax

Currently, individuals have the ability to convert funds contributed to a traditional pre-tax or Roth IRA to the other type of IRA. Individuals who convert pre-tax contributions as Roth contributions are required to pay taxes on those amounts at the time of conversion. Under existing law, taxpayers normally have until October 15 of the year following the conversion to change their mind and undo the conversion transaction. This means that a taxpayer can decide he or she does not want to be stuck with the tax liability associated with all or part of the conversion transaction and can go back and change it.

Under the Act, an individual will no longer be allowed to reclassify (or "recharacterize") a converted amount. This means, for example, that if an individual transfers money from a traditional IRA (or from a pre-tax contribution source in his or her employer retirement plan to a Roth IRA), the individual will not be allowed to reclassify the amount for tax years beginning after December 31, 2017. If a taxpayer completed a conversion at any time in 2017, it is unclear whether this means that the taxpayer must reverse that action by December 31, 2017, or will have until October 15, 2018, to do so.

Contribution Limits under Governmental Section 457(b) Plans

Governmental and other tax-exempt plan sponsors are subject to certain limits on the deferral of compensation. However, under current law, a special length of service award made to a volunteer who provides firefighting and prevention, emergency medical and ambulance service is not treated as deferred compensation as long as the aggregate amount the volunteer accrues for each year of service does not exceed $3,000. Beginning in 2018, the Act doubles this limit to $6,000 (as adjusted each year for cost-of-living).

2016 Disaster Area Relief

The Act also contains tax relief for certain retirement plan and IRA distributions taken on or after January 1, 2016, and before January 1, 2018, by an individual whose primary residence was located in a federally declared disaster relief area during 2016 and who sustained economic loss as a result of such a disaster. For distributions treated as a "qualified 2016 disaster distribution," the Act: (1) provides an exception to the 10 percent early distribution penalty; (2) exempts the distribution from mandatory 20 percent withholding; (3) permits ratable income inclusion over three years; and (4) permit repayments or rollovers (to the extent that a plan or IRA accepts rollovers) within three years. This special tax treatment is limited to distributions not in excess of $100,000. While not entirely clear from the text of the Act, we believe such distributions are only available if permitted by the plan, subject to further guidance from the IRS.

The disaster relief is similar to the retirement-plan-related relief signed into law after Hurricanes Harvey, Irma and Maria.


Although the retirement plan changes in the Act are few, plan sponsors should be prepared to consider and implement the changes in 2018. In particular, changes to loan rollover procedures will require updates to plan administration, participant communications, and possible plan amendments.

Tax Reform Results In Only Minor Changes For Retirement Plans

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions