Author Archives: Reeve Conover

Changes in your 401k plan in 2019- Hardship Rules

A number of 401k plan changes were included in the Bipartisan Budget Act, specifically around Hardship with drawals and repaying plan loans:


Hardship Withdrawals:  Currenlty, employees seeking to take money out of their 401(k) accounts are limited to the funds they contributed themselves.  They must first take a loan from the same account, which has to be repaid.

Due to the Bipartisan Budget Act, the rules will change in 2019. Employees’ withdrawal limit will include not just amounts they have contributed, but also employer matching contributions plus earnings on contributions. If someone has been participating in the 401(k) for several years, this could add substantially to the amount of funds available in the event of a legitimate hardship.

Employees will be able to stay in the plan and continue to contribute starting in 2019, currently they are banned for 6 months after the Hardship Withdrawal.  Plan sponsors won’t be required to unenroll and then re-enroll employees after that six-month hiatus.

One thing that hasn’t changed: Hardship withdrawals are subject to income tax, plus a 10 percent tax penalty. That could take a substantial bite out of the amount withdrawn, effectively forcing account holders to take out more dollars than they otherwise would have.

Hardship criteria

There has been no change to the criteria for a hardship withdrawal:

Such a withdrawal “must be made because of an immediate and heavy financial need of the employee and the amount must be necessary to satisfy the financial need.” That can include the need of an employee’s spouse or dependent, as well as that of a nonspouse, nondependent beneficiary.

The IRS goes on to say that the meaning of “immediate and heavy” depends on the situation. It also assumes the employee doesn’t have any other way to meet the needs. The following are examples offered by the IRS:

• Qualified medical expenses (which presumably don’t include cosmetic surgery)

• Costs relating to the purchase of a principal residence

• Tuition and related educational expenses

• Payments necessary to prevent eviction from, or foreclosure on, a principal residence

• Burial or funeral expenses

• Certain expenses for the repair of damage to a principal residence

Repaying Plan Loans as an ex-employee

Prior to 2018, if an employee with an outstanding plan loan left their employer, he or she would have to repay the loan within 60 days to avoid having it deemed as a taxable distribution (and subject to a 10 percent premature distribution penalty for employees under age 59-1/2).

The TCJA changed that deadline to the latest date the former employee can file his or her tax return for the tax year in which the loan amount would otherwise be treated as a plan distribution. So, for example, if someone with an outstanding loan of $5,000 changed jobs on Dec. 31, 2017, he or she would have until April 15 (or, with a six-month filing extension, Oct. 15), 2018, to repay the loan.

Alternatively, he or she could make a contribution of the same amount owed ($5,000, in this example) to an IRA or their new employer’s plan, assuming the new plan permitted it. That $5,000 contribution would be treated the same as a rollover from the old plan.

As always, please consult your tax adviser should you have any questions.

Northwell combines with Western Connecticut System

DANBURY — The health network that runs Danbury, Norwalk and New Milford hospitals is joining forces with a four-hospital group in New York to form a $2.4 billion medical system stretching from the Hudson River to the shores of Long Island Sound.

The merger of the Western Connecticut Health Network and Health Quest Systems, which is subject to approval by the states of Connecticut and New York and the Federal Trade Commission, would create a seven-hospital network serving 1.5 million people.

“You have two health networks of similar size coming together in a powerful way to provide more access and capacity for our residents and community members,” said Robert Friedberg, the president and CEO of Health Quest, told Hearst Connecticut Media. “This is a pretty dramatic change, because usually with a deal like this, the health networks are not equals, and you don’t have this sharing of perspective.”

The merger, described as a mutually beneficial deal that brings together 2,600 physicians and 12,000 employees, is designed to strengthen the networks’ position in western Connecticut and the lower Hudson Valley.

“We think that collectively we will be able to bring in services that we currently don’t have, such as neurosurgical procedures that require a high volume in order to attract physicians,” said Dr. John Murphy, president and CEO of Western Connecticut Health Network. “We might be able to bring in pediatric specialties and certain types of cancer treatments.”

30% higher premiums, lower enrollment.

In the not-exactly-a-shock category, this newsbit from Reuters:

(Reuters) – About 11.8 million consumers nationwide enrolled in 2018 Obamacare exchange plans, a 3 percent drop from last year when 12.2 million consumers signed up, according to a final government tally released on Tuesday by the Centers for Medicare and Medicaid Services.

The tally includes both sign-ups on the exchange run by the federal government for 39 states, which was released on a provisional basis late in 2017, and on the 12 other exchanges run by Washington, D.C. and the remaining states.

CMS said the average premium before tax credits in 2018 is $621 a month, an increase of more than 30 percent from last year.

Aetna to pass on Drug Discounts

Aetna Inc. will pass on the discounts it negotiates on prescription drugs to about 3 million of its members, the latest move by a health insurer to address Americans’ complaints about the cost of medicine.

The discounts, which can amount to more than half a drug’s list price, will be passed on at the pharmacy counter for many people starting next year, Aetna Chief Executive Officer Mark Bertolini said in a telephone interview. The move by the No. 3 U.S. health insurer follows a similar decision earlier this month by its larger peer, UnitedHealth Group Inc.

Over the last year, drugmakers, insurers and pharmacy benefit plans, or PBMs, have blamed one another for the cost of prescription drugs in the U.S. PBMs and insurers have said it’s the fault of the pharmaceutical companies that frequently raise their list prices. Drugmakers blame insurers and pharmacy benefit plans for high copays, and for not passing on to patients the discounts they negotiate. People with high deductibles or co-pays are often hurt the most.

“We want people to see the truth, and now they see it,” Bertolini said. “When drug prices keep going up, and drug costs keep going up, they’ll have one place to look.”

Do you have missing participants in your 401K?

As employees terminate, they typically leave their balances with the prior employer.  In these cases, they are still participants – meaning you still pay to administer their account, and you have an obligation to communicate with them as much as any active employee.   This is not a problem, until you lose track of the ex-employee.  While it is not your Fault, it is still your responsibility under the law.

50% of Millenials in a recent survey learned of a retirement account with a previous employer they didn’t realize they had.

Enter the “Missing Participant IRA.”  The best solution is to get the ex-employee to take their balance with them when they leave.  Since that doesn’t always work, you need a mechanism to handle this.  With some of our clients we use a third-party outside service, but more and more high-end TPAs are providing this service automatically.


If you are concerned about COMPLIANCE in your 401k just give us a call.

August 2018
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Reeve Conover is a Registered Representative. Securities offered through Cambridge Investment Research, Inc., a Broker/dealer member FINRA/SPIC. Cambridge and Conover Consulting are not affiliated. Licensed in SC, NC, NY, CT, NJ, and CA. - SIPC - Brokercheck