As the new year approaches, benefit plan sponsors will be focusing on the changes mandated by the Patient Protection and Affordable Care Act (ACA) for group health plans, and the effect of the Supreme Court's U.S. v. Windsor ruling striking down key parts of the federal Defense of Marriage Act on both retirement and health plans. With all the planning, there will hardly be time to keep up with all the normal plan maintenance issues. This article serves as a to-do list for plan sponsors in meeting their annual notice obligations and any additional actions that may be required in the wake of ACA or the Windsor decision.
As 2013 is coming to a close, plan sponsors of retirement plans must provide notices required by annual notice requirements, meet year-end deadlines to remain qualified, and address the IRS guidance on qualified retirement plans in the aftermath of Windsor.
1. Safe Harbor 401(k) Plans
Plan sponsors of safe harbor 401(k) plans must provide to all participants an annual notice that describes the safe harbor employer contributions and provides detail on other features of the plan (e.g., withdrawal provisions). This notice is required to be given to participants at least 30 days, but not more than 90 days, before the first day of the plan year. For calendar year plans, notice must be provided by Dec. 1, 2013. The IRS published the updated deferral and compensation limit on Oct. 31, 2013. The deferral limits remained unchanged but the compensation limit increased from $255,000 to $260,000 for 2014.
A safe harbor 401(k) plan is allowed to combine this notice with subsequent notices (automatic enrollment and/or the qualified default investment).
2. Automatic Enrollment Features
Plans that automatically enroll participants are required to give an annual notice that describes the enrollment features and which pay will be automatically contributed to the plan. This notice is required to be given to participants at least 30 days, but not more than 90 days, before the first day of the plan year. For calendar year plans, notice must be provided by Dec. 1, 2013.
3. Qualified Default Investment
Where participants are allowed to direct their own investments, defined contribution plans are allowed to select a “qualified default investment” in which participants’ assets will be invested if no affirmative election is made. The plan sponsor must give notice that describes the qualified default investment. This notice is required to be given to participants at least 30 days, but not more than 90 days, before the first day of the plan year. For calendar year plans, notice must be provided by Dec. 1, 2013.
4. Funding Notice for Defined Benefit Plans
Defined benefit plans are required to provide a funding notice explaining a statement of the plan’s assets and liabilities, its funding status for the previous two years and certain other information and requirements (e.g., Pension Benefit Guaranty Corp. limits). This notice must be provided to participants within 120 days after the end of the plan year, or if the plan is a small plan that covers fewer than 100 participants, notice must be provided by the due date of the Form 5500. For large (100 or more participants) calendar year plans, notice must be provided by April 30, 2014.
1. 436 Amendment
Most experienced plan sponsors are probably asking, “436 again”? Section 436 of the Internal Revenue Code was added by the Pension Protection Act of 2006 and requires restrictions on distributions and limitations on benefit accruals if a retirement plan does not meet certain funding levels. The amendment to account for this provision was originally required to be completed the last day of the plan year starting in 2009, then 2010, then 2011, then 2012, and now 2013, in order for plans to be afforded anti-cutback relief. For calendar year plans, this means the plans must be amended by Dec. 31, 2013.
We believe that the deadline will not be extended again, so employers should ensure that their plans are properly amended.
2. Cycle C Filers
Employers with an employer identification number (EIN) that ends in 3 or 8 and sponsor an individually designed plan are considered “Cycle C filers.” In addition, regardless of EIN, governmental plans are normally Cycle C filers, unless such plan otherwise elected to be a Cycle E filer (there is no election form or notice to the IRS required if a governmental plan elects to be a Cycle E filer). Cycle C filers must restate their plans and submit a determination letter application to the IRS by Jan. 31, 2014. This process is sometimes lengthy so plan sponsors should be starting to prepare the submission materials as soon as possible.
3. 403(b) Plans
Sponsors of 403(b) plans will want to ensure that they have complied with IRS regulations that require the plan to timely adopt a written plan document. The written plan document was required to be maintained for such plans prior to Dec. 31, 2009. However, in guidance relating to corrective action under the Employee Plans Compliance Resolution System (EPCRS) issued earlier this year, the IRS provides fee relief for 403(b) plans that have failed this requirement if they make a voluntary submission under the program by Dec. 31, 2013. Therefore, if you are a sponsor of a 403(b) plan that failed to adopt a written plan document in 2009, you may correct in 2013 and only pay a 50 percent fee under the voluntary correction procedure.
4. Discretionary Amendments
All discretionary amendments to qualified plans must be adopted no later than the end of the plan year in which they are adopted. Therefore, a calendar year plan that has implemented a change to its plan in 2013 will have to be amended by Dec. 31, 2013.
A Quick Word on IRS Guidance in the Aftermath of Windsor
The IRS issued guidance in the aftermath of Windsor that took a “place of celebration” approach for federal tax purposes; subsequently, the Department of Labor (DOL) announced that they will take a similar approach for purposes of ERISA. This approach instructs that a couple that is validly married in a state or foreign jurisdiction that recognizes same-sex marriage will be considered married for federal tax purposes even if they live in a state that does not recognize same-sex marriage. Employers should be operating in compliance with this guidance as of Sept. 16, 2013. The IRS has stated that it will issue further guidance for purposes of plan amendments and the timing requirements for those amendments. For now, employers should just make sure they are operating in compliance with the IRS guidelines, and await further guidance.
Employers should have already provided notice to employees informing them of the availability of health insurance through the ACA's “marketplace” and employer-offered health coverage. The deadline for this marketplace notice was Oct. 1, 2013.
1. Summary of Benefits & Coverage
Plan sponsors are required to distribute a summary of benefits and coverage (SBC) to participants and beneficiaries with initial enrollment materials and each year thereafter. At open enrollment, the SBC must be provided for each benefit package offered for which the participant or beneficiary is eligible. The DOL's template for the SBC was revised in April 2013, so it may be slightly different from the version that an employer used last year. Upon renewal, only a SBC that is applicable to the specific benefits package of the participant or beneficiary is required and it needs to be provided 30 days prior to the first day of the plan year, unless written application is required (in which case, it must be provided no later than when the written application materials are distributed).
ACA put forth a new rule that requires advance notification of material modifications that would affect the content required in the SBC. If the plan sponsor makes any such material modification other than in connection with a renewal of coverage, it must notify participants at least 60 days prior to the effective date of the amendment. This may be provided in a separate notice describing the changes or provided in an updated SBC reflecting the modifications. If advance notice is not required because it does not affect the content of the SBC, plan sponsors must still provide a summary of material modification for changes that are material reductions, which is generally required within 60 days after the reduction.
2. HIPPA Privacy Notice
Employers should have already identified those health and welfare plans and programs that are considered “covered entities” subject to the Health Information Portability and Accountability Act (HIPAA). Each such entity was required to update their “Notice of Privacy Practices” by Sept. 23, 2013, in order to conform to newly issued HIPAA regulations. If the updated notice was posted on a website, it is also required to be sent to participants with the open enrollment materials. If the updated notice is not published on a website, the notice is required to be distributed to participants within 60 days of the effective date of the updated policy.
3. New COBRA Notices
The Consolidated Omnibus Budget Reconciliation Act (COBRA) requires group health plans to provide qualified beneficiaries with an election notice that describes their rights to continuation coverage and how to make an election. The election notice must be provided to these individuals within 14 days of when the plan administrator receives the notice of a qualifying event. Earlier this year, the DOL issued new model COBRA notices that reference the “Marketplace” set up under ACA (i.e., the exchanges).
Employers should complete the information required by the notice and modify the model language, as necessary, and use the notice going forward.
4. Pre-Existing Condition Exclusion Notice
Prior to 2014, group health plans were required to provide a notice to individuals detailing any pre-existing condition exclusions (PCEs) under the plan. Starting in 2014, PCEs are no longer allowed. Therefore, the requirement for notices regarding PCEs will become obsolete. However, group health plan sponsors should review their plan design and assess compliance with the requirement to eliminate all PCEs in advance of the effective date of this requirement—i.e., plan years beginning on or after Jan. 1, 2014. The plan sponsor should ensure that the plan document is amended and the summary plan description and other employee communications materials are updated, as necessary.
5. Special Enrollment Rights
A group health plan must provide to each employee who is eligible to enroll in the plan a notice of his or her special enrollment rights at or prior to the time the individual is enrolling. This notice describes the rights of certain individuals to enroll in a group health plan upon the happening of certain events (e.g., the loss of other coverage; gaining a new dependent through marriage, birth, adoption, or placement for adoption; or becoming eligible for premium assistance under Medicaid or a Children’s Health Insurance Program Reauthorization Act). The model DOL Notice has been recently updated.
6. Other Plan Design Changes
Plan sponsors of health plans should also be aware of the changes brought about by the full implementation of ACA on plan design. The following is a brief summary of some of the changes:
- Pre-existing condition exclusions are no longer permitted (this prohibition took effect in 2010 with respect to individuals who are under 19 years of age).
- Grandfathered plans will no longer be permitted to exclude adult children who have health care coverage under the child’s employer’s plan.
- Waiting periods greater than 90 days will no longer be permitted.
- Annual limits on the dollar amount of “essential health benefits” for any individual are prohibited.
- “Limited benefit” or “mini-med” plans and stand-alone health reimbursement accounts (HRAs) cannot be maintained after the 2013 plan year.
- Nongrandfathered plans must provide coverage for certain clinical trials and cannot deny or limit coverage of routine patient costs for items and services furnished in connection with the trial, or discriminate against an individual based on participation in the trial.
- Nongrandfathered, fully insured plans offering coverage in the individual or small group market must provide “ essential health benefits.”
- Maximum out-of-pocket limits (for 2014 these maximums are $6,350 for self-only coverage and $12,700 for family coverage).
- Annual deductible may not exceed $2,000/$4,000 (as adjusted).
- Transitional reinsurance fees will be imposed.
- The individual mandate aspect of ACA will be in effect in 2014.
Additionally, on Oct. 31, 2013, the IRS announced a change in the “use it or lose it” rules for health flexible spending accounts. An employer may now, at its option, permit health FSA participants to carryover up to $500 of any unused balance at the end of a plan year, to the immediately following plan year, so long as it does not offer a “grace period” under the plan.
Jonathan A. Kenter and Evelyn Small Traub are partners, and Adam M. Meehan is an associate, with law firm Troutman Sanders. © 2013 Troutman Sanders LLP. All rights reserved. Reposted with permission. This article is not to be considered legal advice. Additional hyperlinks were added by SHRM editors.
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