This week, the EEOC filed its third, and perhaps most significant, complaint in a wellness-related case. The complaint alleges that the wellness program, which involved biometric screening and a surcharge for tobacco users, violates the Americans with Disabilities Act (ADA) and Genetic Information Nondiscrimination Act (GINA). The ADA complaint is that the program requires a medical examination that is not job-related or consistent with business necessity. The GINA complaint is that the employer is providing a prohibited inducement to receive genetic information. The maximum penalty under the program is $4,000 per year.
While the details of the program are not fully fleshed out in the complaint, this appears to be an escalation of the EEOC’s focus on wellness programs. While $4,000 is a significant sum of money, this appears to us to be a typical wellness program.
The frustrating aspect of these wellness program lawsuits is that it appears to be a case of the EEOC foregoing the rulemaking process in favor of litigation. The HIPAA wellness regulations have been in effect since 2006 and people have been asking for guidance from the EEOC since then. Until these lawsuits, it has largely been crickets, other than a few informal letters that didn’t help much.
Additionally, the Affordable Care Act basically took those rules and made them part of the ACA statutory framework back in 2010. This shows a clear Congressional intent to encourage these programs. When all we had were the 2006 HIPAA rules, the EEOC could have cogently argued that it owed no real deference to those rules. That argument loses much of its steam with these rules being embodied in the U.S. Code.
Finally, in 2012, the Eleventh Circuit Court of Appeals dealt a significant blow to the positions the EEOC is taking in these cases with respect to the ADA. It ruled that the terms of the wellness program in that case were a term of a bona fide benefit plan, which at least under the ADA, made any medical examinations exempt from the ADA’s prohibition on involuntary medical examinations that are not job-related and necessary. Additionally, if the program is a term of a plan, it would arguably fall under a separate section of GINA over which the EEOC does not have enforcement authority. That could effectively nullify the EEOC’s GINA complaint.
Between the Eleventh Circuit case and the clear Congressional intent in the ACA, it is disappointing for the EEOC to pursue these cases rather than try to address them through traditional rulemaking. Employers with wellness programs should review this new complaint carefully. Curbing existing wellness programs may or may not be warranted based on the EEOC’s recent spate of lawsuits, depending on the nature of the employer’s program. Employers would also be well-advised to review the EEOC’s positions prior to taking steps to implement new or expand existing wellness programs.
On October 17, 2014, the Internal Revenue Service published a guide entitled “Retirement Plan Reporting and Disclosure Requirements Guide.” The Service states that the Guide is intended to be a quick reference tool to assist plan sponsors and administrators and is to be used in conjunction with the Department of Labor’s “DOL Retirement Plan Reporting and Disclosure Guide” [sic]. The DOL Guide was last updated in August 2013 and is actually called “Reporting and Disclosure Guide for Employee Benefit Plans”.
The IRS Guide covers twenty-five basic notices and disclosures, and, of course, not all of them would pertain to a particular plan. The type of plan determines the number and frequency of participant notices/disclosures. The IRS Guide addresses eleven possible reports, and, as with disclosure, the requirement for reporting depends on the nature of the plan.
The DOL’s Guide identifies thirty-three possible disclosures including both Department of Labor and PBGC notices. It identifies nineteen possible DOL and PBGC reports. As with the IRS reports and disclosures, not all of these are required for every type of retirement plan.
According to the IRS, the IRS Guide is not intended to be an exhaustive list of reporting and disclosure items but is meant to cover certain basic reporting and disclosure requirements for retirement plans required under the Internal Revenue Code and the parts of ERISA that are administered by the Service. It, along with DOL’s Guide, demonstrate how overwhelming the compliance obligations are in just the reporting and disclosure aspect of operating a retirement plan. The regime begs for analysis of the value of all the disclosures (are they read, and, if so, are they understood?) and reports (what can the IRS, DOL and PBGC do with so many of them?).
Both Guides state that not all reports and disclosures are listed. This fact, along with the myriad items that are listed, suggests that the reporting and disclosure regime is cumbersome, inefficient and expensive. It’s time for an evaluation to determine the benefit to participants and plan sponsors in having so much information produced in so many different forms. Surely there must be ways to simplify the reporting and disclosure regimes and make the information more valuable – particularly to participants, many of whom seem overwhelmed by it all.
They’re here! The 2015 IRS plan limitations arrived a full week earlier than last year. Most of the limitations have been adjusted upwards. See the chart below (after the jump) to see the new limits as well as a summary of the limits over the preceding three years.
By now, many U.S. employers are heavily involved in preparing for workplace issues implicated by Ebola. From a benefits perspective, make sure your planning gives appropriate consideration to the Family and Medical Leave Act (FMLA).
Undoubtedly, an employee who is eligible for FMLA leave will be entitled to such leave if the employee contracts Ebola, based on having a serious health condition that requires leave from work. Similarly, an eligible employee whose covered family member contracts Ebola is likely to be entitled to leave to care for such family member (even if such “care” involves only psychological care and not physical care).
But what about the employee who is exposed or potentially exposed to Ebola, and, as a result, is requested or required – or even just volunteers, based on potential exposure – to be in quarantine? And what about employees who have not been exposed but who are fearful of contracting Ebola in the workplace and refuse to come to work?
An argument could be made that an eligible employee who is in quarantine based on exposure or a reasonable belief of potential exposure to Ebola is entitled to leave under the FMLA. This is because the definitions of “serious health condition,” “incapacity,” and “unable to perform the functions of the [employee’s] position” include situations in which an employee must be absent from work to receive “treatment.” “Treatment” in turn includes “examinations to determine if a serious health condition exists.”
Individuals who are in quarantine due to Ebola exposure or potential exposure typically are subject to monitoring by heath care providers over a period of 21 days. Accordingly, such individuals arguably satisfy the requirements for being entitled to job-protected FMLA leave for the duration of their quarantine. It also should be noted that various states have enacted laws prohibiting employers from terminating employees when an official quarantine is implemented by state or federal public health officials.
As for employees who have not been exposed to Ebola but who refuse to come to work based on fears of exposure through contact with co-workers, the FMLA is less likely to be involved (although other federal and state laws, as well as other employer leave policies, could come into play). It is conceivable, however, that an eligible employee may have a serious health condition (physical or mental) which is exacerbated by the stress or anxiety of a perceived (real or imagined) risk of exposure. Assuming such an employee is able to obtain appropriate certification from a health care provider, the employee’s leave from work may be protected by the FMLA.
In light of the numerous unresolved issues surrounding the process for plan sponsors to obtain a health plan identifier (“HPID”) for their self-funded health plan, we suggested in an earlier post that plan sponsors consider delaying the application process in the hope that regulators would address at least some of the unanswered questions. Since that time, the Centers for Medicare and Medicaid Services (“CMS”) has updated its Health Plan and Other Entity Enumeration System User Manual and issued a set of Frequently Asked Questions. As the deadline for obtaining an HPID approaches, the time for waiting is over.
HPIDs are obtained through the Health Plan and Other Entity Enumeration System (“HPOES”) portal, which is a component of the CMS Health Insurance Oversight System (“HIOS”). However, plan sponsors must first obtain access to the CMS Enterprise Portal before they can register in HIOS and HPOES. Thus, the application process for an HPID is a multi-step process and that may take several days since identification verification and a manual review of submitted information must be conducted at each step. There is substantial information on the application process available through the CMS website, as well as a quick reference guide that outlines the steps for obtaining an HPID.
The deadline for a controlling health plan to obtain an HPID is November 5, 2014. However, small health plans may have an additional year to comply. Given that (i) the regulators have clarified many of the open issues regarding the HDIP application; (ii) the application entails multiple steps that may require several days to complete; and (iii) no extension of the compliance deadline appears to be forthcoming, we highly recommend that plan sponsors start the HDIP application process now rather than waiting until the due date.
Annual open enrollment is always a complicated time for benefits teams…. Questions abound: Is the coverage offered legally compliant? What is the latest and greatest notice that must be included in the annual open enrollment package? Have the rules changed regarding how we send the notices?
Well, this year is no different. With the advent of the employer mandate’s enforcement, there are many new requirements that benefits and HR teams are grappling with to ensure compliance. We wanted to take a moment to post a specific reminder about collecting social security numbers for self-insured plans providing minimum essential coverage.
As you are likely aware, self-insured plans will need to begin the onerous reporting process to comply with Code Sections 6055 and 6056 beginning in Q1 2016. But, what may have slipped off your radar is that these reporting rules require reporting of an individual’s taxpayer identification number (“TIN”). If a person has an SSN, that is his or her TIN. If a person does not have an SSN, he or she might instead have an Individual TIN (“ITIN”), which is a nine-digit number issued by the IRS to individuals who are required for U.S. tax purposes to have an identification number but who do not and are not eligible for an SSN. In some cases, an alien dependent may have an Individual TIN because a parent is claiming the dependent as a tax dependent on a U.S. tax return. Also, some alien spouses may have ITINs.
To comply with large employer reporting for a self-insured plan, you need to provide the TIN of each full-time employee; there are no exceptions. With respect to the minimum essential coverage reporting, you must take reasonable efforts to collect the TINs of an employee’s covered spouse or dependents. If these individuals do not have a TIN or you cannot obtain it after making reasonable efforts, the rules allow you to report the date of birth of the individual.
Reasonable efforts are defined in the final rules issued earlier this year. Generally, in order to comply with early 2016 reporting, the IRS will consider the following efforts reasonable:
- solicit information by December 31, 2014, and if not provided at that time;
- make a second solicitation by December 31, 2015;
- assuming the second request is also unsuccessful, use the date of birth in place of a TIN for the individual in question for Q1 2016 reporting; and
- make one additional solicitation by December 31, 2016.
One additional point – reporting a date of birth in one year does not eliminate the need to make reasonable efforts to obtain a TIN in the future.
During the current annual open enrollment period for self-insured plans, you should take the opportunity to collect SSNs from all covered/enrolled individuals. Check out our post from earlier this week that contains more tips on end-of-year health plan to dos!
Continuing our discussion of “quirky” counting rules under the Family and Medical Leave Act (“FMLA”), today we address these questions: May leave granted to an employee who is not eligible for FMLA leave be designated as FMLA leave? And may that leave be counted against the 12-week FMLA leave entitlement.
The short answer (to both) is: No.
This question typically arises because an employer is trying to be generous. For example, the employee is a newer employee and needs leave, but has not yet worked for the employer for 12 months or 1,250 hours. Or perhaps the employer has various office locations and wants to allow employees in smaller offices (which do not meet the 50 employees in 75 miles eligibility rule) to take FMLA leave just like employees in larger offices are able to do.
But while an employer is certainly permitted to provide an employee with leave when not otherwise required by the FMLA, the regulations are clear that such leave is not FMLA leave and may not be counted against an employee’s 12-week FMLA entitlement.
So, for example, if an employee is permitted to begin a leave prior to reaching the 12 months of employment threshold, such leave cannot be designated as FMLA leave at any time. Instead, if and when the employee reaches the 12 months of employment threshold, only leave that occurs after the eligibility requirement is met can be counted against the employee’s FMLA entitlement.
Employers who generously grant “FMLA-like leave” to all employees regardless of whether such employees meet the eligibility requirements need to recognize that when an employee becomes eligible, he or she can demand a full 12 weeks of FMLA leave. Alternatives for handling pre-FMLA eligibility leave requests include establishing a non-FMLA leave policy, providing leave as an accommodation under the ADA (after conducting an appropriate analysis under the ADA to determine whether such leave is appropriate), or handling special situations on a case-by-case basis.
With 2015 just around the corner, certain mandates under the Patient Protection and Affordable Care Act, as amended (“ACA”) are about to become effective. Health plans also have several existing enrollment and annual notice requirements. Below is a checklist of upcoming ACA mandates that employers must implement in preparation for or in 2015 and a summary of existing enrollment and annual notice requirements.
For a refresher on the ACA mandates which became effective this year, please see our 2014 group health plan checklist here.
I. ACA Requirements That Apply to All Group Health Plans (Whether Grandfathered or Not)
On or beginning with the dates specified below, a group health plan must comply with the following requirements, regardless of its status as a “grandfathered health plan”:
Obtain a Health Plan Identifier Number (HPID).
In an effort to standardize data for covered electronic transactions under HIPAA, health plans are required to obtain an HPID by November 5, 2014, although small health plans may have an additional year to comply. Regulators have confirmed that self-funded health plans are subject to this requirement, even if the plan uses an insurance company or third-party administrator for plan administration. Unfortunately, it’s not completely clear how this applies to self-funded plans, as we previously discussed. The Centers for Medicare and Medicaid Services (“CMS”) home page for HPID information may be found here.
Calculate and Pay Transitional Reinsurance Fees.
Certain self-insured group health plans offering major medical coverage, as well as health insurance issuers (“Contributing Entities”) are responsible for paying this annual fee. Contributing Entities must submit their annual enrollment count for 2014 by November 15, 2014, which will help determine the fee. Then, Contributing Entities will have the option to pay: (1) the entire 2014 benefit year contribution of $63.00 per covered life no later than January 15, 2015; or (2) two separate payments for the 2014 benefit year, with the first due by January 15, 2015 reflecting $52.50 per covered life, and the second due by November 15, 2015 reflecting $10.50 per covered life. For more information, click here or see this CMS bulletin.
Calculate and Pay PCORI Fee.
The Patient-Centered Outcomes Research Institute Trust Fund fee (“PCORI” fee) is paid by issuers of certain health insurance policies and by plan sponsors of applicable self-insured health plans. The amount is equal to the average number of lives covered during the policy year or plan year multiplied by the applicable dollar amount for the year. Although this is not a new requirement, the applicable dollar amount for policy and plan years ending after September 30, 2014, and before October 1, 2015 was recently announced as being $2.08. Payment of this third annual PCORI fee, based on the 2014 plan year, will be due July 31, 2015, and is reported using IRS Form 720, Quarterly Federal Excise Tax Return.
II. Additional Requirement That Applies to Non-Grandfathered Plans
Group health plans that are not grandfathered for ACA purposes must comply with the following additional requirement on or after January 1, 2015:
Ensure Cost-Sharing Limitations Are Not Above Certain Ceiling Amounts.
The overall cost-sharing limits (sometimes called the “out-of-pocket maximum”) for plan years beginning in 2015 are $6,600 for self-only coverage and $13,200 for other than self-only coverage. For HSA-compatible high-deductible health plans, those 2015 limits are $6,450 and $12,900, respectively. Does your plan use one service provider for medical benefits and another for prescription drug benefits? Starting in 2015, participants cannot be asked to pay more than the above-stated out-of-pocket maximums for medical and prescription drugs combined. The out-of-pocket maximum includes deductibles, coinsurance, copayments and similar charges, but does not include premiums, non-covered expenses, and certain other items. Your plan can provide for separate maximums for each of medical and prescription drugs so long as the combined maximums do not exceed the 2015 amounts.
III. The Employer Shared Responsibility Rules (“Employer Mandate”) and IRS Health Care Coverage Reporting
Play or Pay: The Employer Mandate Takes Effect.
Beginning January 1, 2015, most employers with an average of at least 100 full-time and full-time equivalent employees during the preceding year can be subject to a penalty tax for (i) failing to offer health care coverage to 95% (for 2015 only, 70%) of their full-time employees (and their dependents); or (ii) offering minimum essential coverage that is either not affordable or under which the plan’s share of the total allowed cost of benefits is less than 60% of the actuarial value. Employers with between 50 to 99 full-time and full-time equivalent employees in 2014 will not be subject until 2016, but only if they meet certain specific requirements. Additionally, employers that maintained non-calendar-year plans as of December 27, 2012 may have until the first day of their 2015 plan year to comply, but again, only if certain specific requirements are met.
Take Steps Now to Satisfy 2016 Health Care Coverage Reporting Requirements.
Two sets of health care coverage reporting requirements will come into effect in early 2016, but employers should be preparing now. The reporting requirements are found under Code Section 6055 (“Minimum Essential Coverage Reporting”) and Code Section 6056 (“Large Employer Reporting”). Minimum Essential Coverage Reporting requires every provider of health coverage (i.e., insurers and employers who self-fund plans included) to file information returns with the IRS and provide statements to individuals covered; the reports will be used to administer the so-called Individual Shared Responsibility Requirement. For Large Employer Reporting, employers subject to the Employer Mandate (see above) must file information returns with the IRS and provide statements to their full-time employees about the health plan coverage the employer offers. Large employers with self-insured minimum essential coverage will prepare combined reports. Employers should note that even if they are not subject to the Employer Mandate until 2016 (see above), they still must engage in Large Employer Reporting for 2015.
Reports for coverage provided or offered in 2015 will be due in early 2016. However, employers will want to begin preparations now so that the information required to be reported is available. For more on these requirements, see the IRS Questions and Answers on both Minimum Essential Coverage Reporting and Large Employer Reporting. You can also visit our blog post on the topic.
One item that bears consideration before the end of 2014 is the requirement to report taxpayer identification numbers or TINs (usually, but not always, Social Security numbers). To comply with Large Employer Reporting, the TIN of each full-time employee must be provided, with no exceptions. With respect to the Minimum Essential Coverage Reporting, the TIN of every covered individual must be reported. This may be difficult for employers who self-insure their health plans but do not collect Social Security numbers for covered spouses or dependent children. Recognizing this, the IRS has provided that, with respect to Minimum Essential Coverage Reporting, if a covered individual such as a spouse or dependent does not have a TIN or you cannot obtain a TIN after making reasonable efforts, you may report the date of birth of the individual instead. For early 2016 reporting, the IRS will consider the following efforts as reasonable: 1) request the TIN by December 31, 2014, and if not provided at that time, 2) make a second request by December 31, 2015. If the second request is also unsuccessful, the reporting entity would not be penalized if the early 2016 report contained a date of birth in place of a TIN for the individual in question. One additional request must be made by December 31, 2016, to continue to use the date of birth in lieu of the TIN after 2016.
IV. Existing Notice and Filing Requirements
Upon Hire of New Employee – Marketplace Notice.
Employers subject to the Fair Labor Standard Act are required to distribute notices to new employees within 14 days of hire, informing them of the availability of health insurance through the Marketplace/Exchange and of any employer-offered health coverage. The Department of Labor (“DOL”) has provided employers with two sample form notices that can be used to comply with this requirement: one for employers who sponsor a group health plan and one for employers who do not.
1) COBRA Notice.
Plan administrators must provide an initial written notice of rights under the Consolidated Omnibus Budget Reconciliation Act of 1986 (“COBRA”) to each employee and his or her spouse when group health plan coverage first commences. Additionally, plan administrators must provide a COBRA election notice to each qualified beneficiary of his or her right to elect continuing coverage under the plan upon the occurrence of a qualifying event. Each of these notices must contain specific information, and the DOL has issued model notices. The model election notice was updated last year to include a discussion of Marketplace coverage options.
2) HIPAA Privacy Notice.
If the group health plan is required to maintain a notice of privacy practices under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), the notice must be distributed upon an individual’s enrollment in the plan. Notice of availability to receive another copy must be given every three years. Plan sponsors should confirm that the notices of privacy practices for their group health plans have been revised to reflect the requirements under Subtitle D of the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”) and the final omnibus rule released in 2013. Following a material modification, which includes any change required pursuant to HITECH or the omnibus rule, the revised notice of privacy practices must be distributed to plan participants within 60 days after the change to the notice.
3) Special Enrollment Rights.
A group health plan must provide each employee who is eligible to enroll with a notice of his or her HIPAA special enrollment rights at or prior to the time of enrollment. Among other information, this notice must describe the rights afforded under the Children’s Health Insurance Program Reauthorization Act.
4) Summary of Benefits and Coverage.
A Summary of Benefits and Coverage (“SBC”) must be provided to participants and beneficiaries prior to enrollment or re-enrollment. At open enrollment, an SBC must be provided for each benefit package offered for which the participant or beneficiary is eligible. Upon renewal, only the summary for the benefit package in which the participant is enrolled needs to be furnished no later than 30 days prior to the first day of the new plan year, unless the participant or beneficiary requests a summary for another benefit package. The SBC must also be furnished to special enrollees within 90 days after enrollment pursuant to a special enrollment right. Finally, ACA requires that a plan sponsor provide 60 days’ advance notice to participants before the effective date of any material modifications to its plan. Such notice must be given only where the material modification(s) would affect the information required to be included in the SBC. The advance notice may be either in the form of an updated SBC or a separate document describing the material modification(s).
Annual Notice Requirements.
The following notices must be provided to participants and beneficiaries each year. An employer may choose to include these notices in the plan’s annual open enrollment materials.
1) Women’s Health and Cancer Rights Act Notice.
The Women’s Health and Cancer Rights Act requires that a notice be sent to all participants describing required benefits for mastectomy-related reconstructive surgery, prostheses, and treatment of physical complications of mastectomy. This notice must be given to plan participants upon enrollment and then annually thereafter. The DOL has developed model language to fulfill this requirement.
2) Medicare Part D Notice.
Group health plans providing prescription drug coverage must provide a notice to any individual covered by or eligible for the group health plan who is eligible to be covered under Medicare Part A or for Medicare Part B (an “eligible individual”). The notice must explain whether the plan’s prescription drug coverage is creditable. Coverage is creditable if it is actuarially equivalent to coverage available under the standard Medicare Part D program. To satisfy the distribution timing requirements, the notice is generally distributed upon an individual’s enrollment in the plan, each year during open enrollment (before the new enrollment commencement date of October 15), and during the plan year if the status of the coverage changes (either for the plan as a whole or for the individual). Model notices are available from the Centers for Medicare and Medicaid Services here.
3) CHIP Premium Assistance Notice.
Employers must also provide notices annually to employees regarding available state premium assistance programs that can help pay for coverage under the plan and how to apply for it. A model notice from the DOL is available here.
ERISA’s General Notice Requirements.
It is important to keep current with ERISA’s general notice requirements, as to both timing and content. For example, changes in plan design must be reflected in Summaries of Material Modifications (“SMMs”) or updated summary plan descriptions (“SPDs”) timely distributed to eligible employees. If a plan change involves a material reduction in covered services or benefits, an SMM or an updated SPD must be furnished within 60 days after adoption of the change. Note that this obligation is independent of the ACA requirement to issue a revised SBC or notification of material modification at least 60 days before a material modification to a SBC becomes effective (as discussed above); however, satisfaction of the ACA requirement will satisfy this requirement with respect to changes disclosed in the updated SPD. Restated SPDs must be furnished every five years if the plan has been amended within five years of publication of the most recent SPD, and every ten years if the information has not been changed.
On September 17th, the Department of Health and Human Services Office for Civil Rights (“HHS”) issued guidance to assist covered entities and business associates in complying with the privacy requirements under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) following the decision issued by the Supreme Court in United States v. Windsor. The guidance clarifies that same-sex spouses, determined under the “state of celebration rule,” must be afforded the same privacy rights as opposite-sex spouses.
The guidance from HHS clarifies that for purposes of the HIPAA privacy rules, the term “spouse” includes individuals who are in a legally valid same-sex marriage sanctioned by a state, territory or foreign jurisdiction (as long as a U.S. jurisdiction would also recognize the marriage) whether or not they live or receive services in a jurisdiction that recognizes their marriage. Similarly, the guidance provides that the term “marriage” includes both same-sex and opposite-sex marriages. Finally, the guidance recognizes that the term “family member” includes dependents from those marriages.
In the guidance, HHS describes two specific areas in which these definitions are relevant. First, HHS indicates that legally married same-sex spouses must be considered spouses for purposes of 45 CFR § 164.510(b) which permits the use and disclosure of protected health information to family members when relevant to the family member’s involvement with care or payment or to facilitate notification of family members regarding the individual’s location, general condition or death.
Second, the guidance indicates that the definitions are relevant in applying the rules under 45 CFR § 164.502(a)(5)(i) which prohibits health plans, other than issuers of long-term care policies, from using and disclosing genetic information for underwriting purposes pursuant to the Genetic Information Nondiscrimination Act of 2008 (“GINA”). HHS clarifies that a same-sex spouse must be considered a family member for purposes of the GINA rule prohibiting plans from using information regarding the genetic tests of family members or the manifestation of a disease or disorder in a family member in making underwriting decisions.
Finally, HHS announced that it intends to issue additional clarifications addressing same-sex spouses as personal representatives under the privacy rules. In the meantime, covered entities and business associates should review their practices, policies, contracts and other documents to confirm that they are in compliance with this guidance.
It’s time to ensure year-end qualified plan deadlines are satisfied. Below is a checklist designed to help employers with this process. This checklist addresses both year-end deadlines and January 2015 deadlines which sponsors of qualified retirement plans may wish to begin preparing for now.
A. DEADLINES APPLICABLE TO QUALIFIED RETIREMENT PLANS
- Cycle D Sponsors. Individually designed plans are on five-year cycles for renewing their determination letters with the IRS. For most Cycle D sponsors (i.e., those sponsors with an employer identification number ending in either 4 or 9), the five-year cycle will end on January 31, 2015. Generally, multiemployer plans are assigned to Cycle D.
Individually designed plan Cycle D sponsors (and multiemployer plan sponsors) who have not already renewed their determination letter this cycle should be prepared to submit their amended and restated plans to the IRS by no later than January 31, 2015. Additional information on timing cycles and determination letters can be found here.
- Qualified Plan Recognition of Same-Sex Marriages. Qualified retirement plans are required to reflect the outcome of United States v. Windsor effective June 26, 2013. If a qualified plan defines a marital relationship by reference to Section 3 of the Defense of Marriage Act (“DOMA”) (or is otherwise inconsistent with Windsor, Rev. Rul. 2013-17 or IRS Notice 2014-19), then an amendment to that plan is required. However, if a plan’s terms are not inconsistent with these sources (e.g., the plan’s definition is simply “spouse,” “legally married spouse” or “spouse under Federal law” without any distinction between a same-sex spouse and an opposite-sex spouse), an amendment is generally not required – although may still be helpful for clarification. Generally, a plan sponsor who has not adopted a plan amendment already will have until December 31, 2014 to do so; governmental plans may have additional time if certain criteria are met. Additional information can be found here.
- Uniform PBGC Premium Due Date Change. The Pension Benefit Guaranty Corporation (“PBGC”) published a final rule in 2013 that requires that both flat rate and variable rate premiums for small defined benefit plans are due 9½ months after the beginning of the plan year for which they are payable (eliminating the prior system which based the due date on the type of premium and size of the plan at issue). In practice, this accelerates the premium due date for small plans, which has been 4 months after the end of the premium payment year, by 6½ months. That said, certain transition rules apply for 2014 premium payments to small plans only for which premiums would otherwise be due in 2014. For more information on applicable premium payment dates, see our blog post here and the PBGC’s 2014 premium payment instructions here.
- Cash Balance and Hybrid Plans. As noted in our prior year-end qualified plan checklists, the Pension Protection Act of 2006 made several changes affecting cash balance and hybrid pension plans, including requiring three-year vesting and prohibiting interest credits at an interest crediting rate that exceeds a market rate of return, but final regulations had not yet been issued nor was a compliance date set in stone. In September, the IRS issued these long-awaited final regulations, addressing the interest crediting rules and other cash balance and hybrid plan matters. While sponsors of such plans that use interest crediting rates should be aware of these final regulations, compliance is not required until 2016.
B. REQUIRED ANNUAL NOTICES
Plan sponsors should ensure that the required annual notices, if applicable, are sent to participants and beneficiaries on a timely basis.
- Section 401(k) Safe Harbor Notice. All participants in a safe harbor 401(k) plan must receive an annual notice that describes the safe harbor contribution and certain other plan features. The notice must be given by December 1 for calendar year plans and for non-calendar year plans not fewer than 30, and not more than 90, days before the first day of the plan year.
- Section 401(k) Automatic Enrollment Notice. If the plan provides that employees will be automatically enrolled, the plan administrator must give eligible employees an annual notice that describes the circumstances in which eligible employees are automatically enrolled and pay will be automatically contributed to the plan. The notice must be given by December 1 for calendar year plans and for non-calendar year plans not fewer than 30 days before the first day of the plan year.
- Qualified Default Investment Notice. A defined contribution plan that permits participants to direct the investment of their account balances may provide that if the participant does not give an affirmative investment direction, the portion of the account balance for which affirmative investment direction was not given will be invested in a qualified default investment. Plan sponsors must give the annual notice by December 1 for calendar year plans and for non-calendar year plans at least 30 days prior to the beginning of the plan year.
NOTE: A safe harbor 401(k) plan can incorporate two or more of the notices described above, as applicable, in a single notice.
- Defined Benefit Plan Funding Notice. An annual notice describing the plan’s funded status for the past two years, a statement of the plan’s assets and liabilities and certain other information relating to the plan’s funded status must be furnished to participants within 120 days after the end of the plan year. For calendar year plans, the deadline is April 30. The deadline for small plans that cover fewer than 100 participants is the due date for the plan’s Form 5500.