2013 End of Year Plan Sponsor “To Do” List Part 3 – Qualified Retirement Plans

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As 2013 comes to an end, we are pleased to present you with our traditional End of Year Plan Sponsor “To Do” Lists. This year, we are presenting our “To Do” Lists in three separate Employee Benefits Updates. Part one of the series covered executive compensation issues; part two covered health and welfare plan issues and part three will cover qualified plan issues. Each Employee Benefits Update will provide you with a “To Do” List of items on which you may want to take action before the end of 2013 or in early 2014. As always, we appreciate your relationship with Snell & Wilmer and hope that these “To Do” Lists focus your efforts over the next few months.

This Employee Benefits Update, part three of our End of Year Plan Sponsor “To Do” Lists, focuses on year-end qualified plan issues.

For your convenience, we have broken the “to do” lists into six categories (accessible via the menu on the left).

All Qualified Plans “To Do” List

  • Adopt Design Changes by the End of the Plan Year: If an employer made any design changes during the year, the plan generally must be amended to reflect those design changes by the last day of the 2013 plan year (i.e., December 31, 2013 for calendar year plans).
  • Adopt Plan Restatement if in Cycle C: If a qualified plan is individually designed and falls in Cycle C (i.e., certain governmental plans or the employer identification number associated with the plan ends in 3 or 8) the plan must be restated and submitted for a determination letter on or before January 31, 2014.
  • Update Summary Plan Description if needed: Summary Plan Descriptions (SPDs) must be updated once every five years if the plan has been amended during the five year period and once every 10 years for other plans.
  • Consider Impact on Employee Benefit Plans of Supreme Court Defense of Marriage Act (“DOMA”) Case: As reported in our September 9, 2013 Legal Alert, “Agencies Issue Guidance on Same Sex Marriage Impacting Employee Benefits,” the Department of the Treasury and the Internal Revenue Service have released guidance on the treatment of same sex-spouses. In Revenue Ruling 2013-17, the IRS and Treasury ruled that same-sex married couples will be treated as married for all federal tax purposes as long as they were married in a jurisdiction that recognizes same-sex marriages, which is known as a “state of celebration” standard. The guidance also provides that the terms “spouse,” “husband and wife,” “husband” and “wife” include an individual married to a person of the same sex if the individuals are lawfully married under state law, and the term “marriage” includes such a marriage between individuals of the same sex. Employers will need to update and amend their qualified plans and plan practices to treat same-sex and opposite-sex spouses the same under qualified retirement plans. This includes (1) offering both same-sex and opposite-sex spouses qualified joint and survivor annuities and qualified pre-retirement annuities, when applicable, (2) requiring spousal consent to beneficiary designations, (3) honoring qualified domestic relations orders and (4) complying with the required minimum distribution provisions.
  • Review 2014 Plan Limits: Become familiar with the 2014 plan limits. See Retirement Plan Limits for 2014 for more information.

Section 401(k) Plans “To Do” List

  • Comply with Items on All Qualified Plans List: The items on the All Qualified Plans list also apply to Section 401(k) plans.
  • Provide Section 401(k)/401(m) Safe Harbor Notice by December 2, 2013 for Calendar Year Plans: As a reminder, if a plan has a Section 401(k)/401(m) contribution safe harbor, an employer must provide the safe harbor notice at least 30 days, but not more than 90 days, before the beginning of each plan year (i.e., December 2, 2013 for calendar year plans).
  • Provide Annual Automatic Enrollment Notice by December 2, 2013 for Calendar Year Plans: As a reminder, if a plan has an automatic contribution arrangement, an eligible automatic contribution arrangement (“EACA”), or a qualified automatic contribution arrangement (“QACA”), or any combination thereof, an employer must give an annual automatic enrollment notice at least 30 days, but not more than 90 days, before the beginning of each plan year (i.e., December 2, 2013 for calendar year plans).
  • Provide Annual Qualified Default Investment Alternative Notice by December 2, 2013 for Calendar Year Plans: If an employer is relying on the qualified default investment alternative (“QDIA”) safe harbor, it must give an annual notice at least 30 days, but not more than 90 days, before the beginning of each plan year (i.e., December 2, 2013 for calendar year plans).
  • Provide Participant Fee Disclosure Information: Plans are required to provide a comparative chart of detailed investment-related information to plan participants and beneficiaries about the plan’s designated investment alternatives on an annual basis. For calendar year plans, the initial fee disclosure was due on August 30, 2012. Department of Labor guidance requires this information to be provided at least annually. In an effort to allow plan sponsors to align this disclosure with other disclosure requirements, the Department of Labor issued Field Assistance Bulletin 2013-02, which provides plan administrators with a one-time opportunity to reset the deadline for the annual fee disclosure. Under this guidance, a plan administrator is treated as satisfying the annual notice requirement if the 2013 fee disclosure is provided no later than 18 months after the initial disclosure was provided (i.e., February 25, 2014). In addition, for plan administrators that have already taken action to furnish the 2013 fee disclosure, the one-time reset opportunity may be applied to the 2014 fee disclosure.
  • Provide Participant Benefit Statements: Defined contribution plans must provide individual benefit statements at least annually, although plans that permit participants to direct the investment of their accounts must provide the statement at least quarterly. Defined contribution plans must also provide the statement upon request.
  • Distribute Summary Annual Report: Employers should distribute a summary annual report, which is a summary of the information reported on the Form 5500. The summary annual report is generally due nine months after the plan year ends. If the Form 5500 was filed under an extension, the summary annual report must be distributed within two months following the date on which the Form 5500 was due.
  • If Adding Qualified Automatic Contribution Arrangement or Eligible Automatic Contribution Arrangement for 2014, Adopt Amendment Before the 2014 Plan Year: Neither a QACA nor an EACA may be adopted mid-year. Accordingly, if an employer wishes to add a QACA or an EACA to its plan for the 2014 plan year, it must adopt an amendment by December 31, 2014 for calendar year plans.

Defined Contribution Plans (Other Than Section 401(k) Plans) “To Do” List

  • Comply with Items on All Qualified Plans List: The items on the All Qualified Plans list also apply to defined contribution plans.
  • Provide Annual Qualified Default Investment Alternative Notice by December 2, 2013 for Calendar Year Plans: If an employer is relying on the qualified default investment alternative (“QDIA”) safe harbor, it must give an annual notice at least 30 days, but not more than 90 days, before the beginning of each plan year (i.e., December 2, 2013 for calendar year plans).
  • Provide Participant Fee Disclosure Information: Plans are required to provide a comparative chart of detailed investment-related information to plan participants and beneficiaries about the plan’s designated investment alternatives on an annual basis. For calendar year plans, the initial fee disclosure was due on August 30, 2012. Department of Labor guidance requires this information to be provided at least annually. In an effort to allow plan sponsors to align this disclosure with other disclosure requirements, the Department of Labor issued Field Assistance Bulletin 2013-02, which provides plan administrators with a one-time opportunity to reset the deadline for the annual fee disclosure. Under this guidance, a plan administrator is treated as satisfying the annual notice requirement if the 2013 fee disclosure is provided no later than 18 months after the initial disclosure was provided (i.e., February 25, 2014). In addition, for plan administrators that have already taken action to furnish the 2013 fee disclosure, the one-time reset opportunity may be applied to the 2014 fee disclosure.
  • Provide Participant Benefit Statements: Defined contribution plans must provide individual benefit statements at least annually, although plans that permit participants to direct the investment of their accounts must provide the statement at least quarterly. Defined contribution plans must also provide the statement upon request.
  • Distribute Summary Annual Report: Employers should distribute a summary annual report, which is a summary of the information reported on the Form 5500. The summary annual report is generally due nine months after the plan year ends. If the Form 5500 was filed under an extension, the summary annual report must be distributed within two months following the date on which the Form 5500 was due.

Defined Benefit Plans “To Do” List

  • Comply with Items on All Qualified Plans List: The items on the All Qualified Plans list also apply to defined benefit plans.
  • Post Portions of Form 5500 on Company’s Intranet: A plan sponsor of a defined benefit pension plan that maintains an intranet website for the purpose of communicating with employees (and not the public) is required to post portions of the defined benefit plan’s Form 5500 on the intranet.
  • Comply with Annual Funding Notice to Participants: Single employer defined benefit plan sponsors must provide participants with an annual notice of the plan’s funding status within 120 days of the end of the plan year to which the notice relates. Plans with fewer than 100 participants do not have to provide the notice until the Form 5500 annual report is due for the plan year.
  • Comply with Participant Notice Requirement if Adjusted Funding Target Attainment Percentage is less than 80%: In addition to the annual funding notice described above, Section 101(j) of ERISA requires a plan administrator to provide a notice to participants if the plan is subject to a restriction on payment of benefits. These restrictions become applicable if the plan’s adjusted funding target attainment percentage is less than 80%. Plan administrators are not required to provide this notice to participants and beneficiaries in pay status.
  • Provide Participant Benefit Statements: Defined benefit plans should provide individual benefit statements every three years or upon request. Alternatively, defined benefit plans may satisfy the requirement by annually notifying participants that the pension benefit statement is available and how a participant may obtain such statement.
  • Amend Plans to Comply with Funding-Based Benefit Restrictions of Section 436 of the Code: IRS Notice 2012-70 extended the deadline for plan sponsors to amend their plans to comply with Section 436 of the Internal Revenue Code of 1986, as amended (the “Code”), which imposes benefit restrictions on certain underfunded defined benefit pension plans. Plan sponsors now must amend their plans by the latest of (1) the last day of the first plan year that begins on or after January 1, 2013, (2) the last day of the plan year for which Section 436 is first effective for the plan or (3) the due date (including extensions) of the employer’s tax return for the tax year that contains the first day of the plan year for which Section 436 is first effective for the plan (i.e., December 31, 2013 for calendar year, non-collectively bargained plans).
  • Provide Suspension of Benefits Notice, if applicable: If required by the terms of the plan, plan administrators must provide notice of the suspension of benefits to participants who continue employment beyond normal retirement age and to rehired retirees. This notice should be given during the first month during which the benefit is suspended.

Section 403(b) Plans “To Do” List

  • Adopt Design Changes by the End of the Plan Year: If an employer made any design changes to the plan during the year, it generally must amend its plan to reflect those design changes by the last day of the 2013 plan year (i.e., December 31, 2013 for calendar year plans).
  • Update Summary Plan Description if Needed: Summary Plan Descriptions ("SPDs") must be updated once every five years if the plan has been amended during the five-year period and once every 10 years for other plans. If a Section 403(b) plan is subject to ERISA, the SPD may need to be updated.
  • Comply with Form 8955-SSA Reporting Requirements: The Form 8955-SSA is the form that replaced the Schedule SSA of the Form 5500. The Form 8955-SSA reports information about plan participants with deferred vested benefits. Generally, the Form 8955-SSA is due by the last day of the seventh month after the plan year ends (subject to a 2 1/2-month extension).
  • Provide Safe Harbor Notice by December 2, 2013 for Calendar Year Plans: As a reminder, if a Section 403(b) plan uses an ACP contribution safe harbor, an employer must provide the safe harbor notice at least 30 days, but not more than 90 days, before the beginning of each plan year (i.e., December 2, 2013 for calendar year plans).
  • Provide Annual Automatic Enrollment Notice by December 2, 2013 for Calendar Year Plans: As a reminder, if a Section 403(b) plan is subject to ERISA and has automatic deferrals, an employer must give an annual automatic enrollment notice at least 30 days, but not more than 90 days, before the beginning of each plan year (i.e., December 2, 2013 for calendar year plans).
  • Provide Annual Qualified Default Investment Alternative Notice by December 2, 2013 for Calendar Year Plans: As a reminder, if a Section 403(b) plan is subject to ERISA and an employer is relying on the qualified default investment alternative (“QDIA”) safe harbor, it must give an annual notice at least 30 days, but not more than 90 days, before the beginning of each plan year (i.e., December 2, 2013 for calendar year plans).
  • Provide Participant Benefit Statements: Section 403(b) plans that are subject to ERISA must provide individual benefit statements at least annually, although plans that permit participants to direct the investment of their accounts must provide the statement at least quarterly. Plans must also provide the statement upon request.
  • Distribute Summary Annual Report: Section 403(b) plans that are subject to ERISA must distribute a summary annual report, which is a summary of the information reported on the Form 5500. The summary annual report is generally due nine months after the plan year ends. If the Form 5500 was filed under an extension, the summary annual report must be distributed within two months following the date on which the Form 5500 was due.
  • If Adding an ACP Contribution Safe Harbor for 2014, Adopt Amendment Before the 2014 Plan Year: ACP contribution safe harbors may not be adopted mid-year. Accordingly, if an employer wishes to add an ACP contribution safe harbor to its Section 403(b) plan for the 2014 plan year, it must adopt an amendment by December 31, 2013 for calendar year plans.
  • Comply with Form 5500 Reporting Requirements: As a reminder, effective for plan years beginning on or after January 1, 2009, Section 403(b) plans subject to ERISA must comply with standard Form 5500 filing requirements, including an annual plan audit for large plans (i.e., plans with 100 or more participants) and detailed financial information for small Section 403(b) plans (i.e., plans with fewer than 100 participants).
  • Last Chance to Correct Section 403(b) Written Plan Document Failure With a Reduced Fee: As reported in our February 7, 2013 Legal Alert, “Employee Benefits Update – The IRS Releases Revised Retirement Plan Correction Program,” the Employee Plans Compliance Resolution System (“EPCRS”) has been updated to, among other things, apply to Section 403(b) Plans. The new EPCRS provides that plan sponsors who failed to timely adopt a written 403(b) plan document before the December 31, 2009 IRS deadline may correct the plan document failure before the end of the year and pay a reduced EPCRS compliance fee. EPCRS compliance fees can be as high as $25,000 for plans with more than 10,000 participants. Plan sponsors that failed to adopt a written 403(b) plan document will benefit from a 50% reduction in the EPCRS compliance fee if they correct the failure prior to December 31, 2013.

Retirement Plan Limits for 2014
The key 2014 dollar amounts (compared to the 2013 dollar limits) are noted below.

The Social Security Administration separately announced the taxable wage base for 2013, which is noted at the end of the chart.

Maximum Qualified Retirement Plan Dollar Limits

 

2013

2014

Limit on Section 401(k) deferrals (Section 402(g))

$17,500

$17,500

Dollar limitation for catch-up contributions (Section 414(v)(2)(B)(i))

$5,500

$5,500

Limit on deferrals for government and tax-exempt organization deferred compensation plans (Section 457(e)(15))

$17,500

$17,500

Annual benefit limitation for a defined benefit plan (Section 415(b)(1)(A))

$205,000

$210,000

Limitation on annual contributions to a defined contribution plan (Section 415(c)(1)(A))

$51,000

$52,000

Limitation on compensation that may be considered by qualified retirement plans (Section 401(a)(17))

$255,000

$260,000

Dollar amount for the definition of highly compensated employee (Section 414(q)(1)(B))

$115,000

$115,000

Dollar amount for the definition of key employee in a top-heavy plan (Section 416(i)(1)(A)(i))

$165,000

$170,000

Dollar amount for determining the maximum account balance in an ESOP subject to a five-year distribution period (Section 409(o)(1)(C)(ii))

$1,035,000

$1,050,000

SIMPLE retirement account limitation (Section 408(p)(2)(E))

$12,000

$12,000

Social Security Taxable Wage Base

$113,700

$117,000

 

 

Topics:  Employee Benefits, Qualified Retirement Plans, Year-End Compliance Checklist, Year-End Planning

Published In: Finance & Banking Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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