Repeal of `Cadillac Tax' good news for employers, employees
I understand that President Trump last week signed into law a year-end government funding bill that repealed the ACA's so-called “Cadillac Tax”?
Yes, that is correct. On Dec. 20, President Trump signed into law a year-end government funding bill that will fund government operations through the 2020 fiscal year. This funding bill unexpectedly includes a number of provisions that impact employer-sponsored medical and retirement plans. Most notably, the bill includes a full and permanent repeal of the ACA's Cadillac Tax and also includes a version of the SECURE Act, which makes significant changes to employer-sponsored retirement plans such as 401(k) plans.
Please remind us what the Cadillac Tax was intended to do.
The Cadillac Tax was a key part of the ACA that imposed a 40% non- deductible excise tax on highvalue employer- provided health plans. The ACA drafters did not want employers to provide coverage that was too “rich,” and so they imposed this tax on high- value medical plans. This is why it is referred to as the Cadillac Tax — because it was intended to apply to “Cadillac” plans. The tax was originally supposed to be effective for taxable years after 2017, but the effective date was extended a few times and was most recently set to be effective in 2022.
Is this repeal good for employers?
This is great for employers. It's also great for employees. While the tax was intended to target highvalue health plans, in application it would have also applied to a number of middle-ofthe-road health plans. And a big chunk of the tax would likely have been imposed indirectly on employees. This is why it was unpopular on both sides of the political aisle.
Tell us a little about the provisions of this funding bill that impact retirement plans.
A version of the SECURE (Setting Every Community Up for Retirement Enhancement) Act is included in this new funding bill. The SECURE Act was overwhelmingly approved by the House back in May, and then it stalled in the Senate. It makes significant changes to the rules governing qualified retirement plans. One notable change is that it provides investors with 18 more months to grow their taxdeferred retirement savings before they have to take a required minimum distribution (RMD). For example, under the rules governing 401(k) plans, when an employee terminates employment, the employee is generally allowed to leave their 401( k) dollars in their retirement account and defer taxable income until age 70½, when they are then required to start taking taxable distributions from their account. The SECURE Act will push that date from 70½ to 72, which will allow retired employees to continue to defer their retirement income and the associated tax until age 72.
Brandon Long is an employee benefits attorney with McAfee & Taft.