2012 End of Year Plan Sponsor “To Do” Lists

In this issue we provide seven “to do” lists that may require you to take action before the end of 2012 or in early 2013.  For your convenience, we have broken the “to do” lists into seven 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 you made any design changes to the plan during the year, you generally must amend your plan to reflect those design changes by the last day of the 2012 plan year (i.e., December 31, 2012 for calendar year plans).
• Adopt Plan Restatement if in Cycle B:  If your qualified plan is individually designed and falls in Cycle B (i.e., the employer identification number associated with the plan ends in 2 or 7 or your plan is a multiple employer plan), you must restate the plan and submit the plan for a determination letter on or before January 31, 2013. 
• 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 whether your SPD needs 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). 
• Consider Impact on Employee Benefit Plans if Supreme Court Grants Certiorari in Defense of Marriage Act (“DOMA”) Cases:  There is a strong possibility that the Supreme Court may grant certiorari this term in a series of cases challenging Section 3 of DOMA.  Section 3 of DOMA currently provides that for purposes of federal law, “marriage” means only a legal union between one man and one woman as husband and wife.  Under this same Section of DOMA, “spouse” refers only to a person of the opposite sex who is a husband or wife.  DOMA does not invalidate same-sex marriages, but under DOMA certain federal benefits can only flow to opposite-sex spouses.  DOMA affects employee benefit plans because, while DOMA is the law, employers are generally free to choose whether to offer benefits to same-sex spouses.  If the Supreme Court grants certiorari and decides that Section 3 of DOMA is unconstitutional, it will have a significant impact on employee benefit plans and employer choices.  For example, all defined benefit pension plans would probably have to offer qualified joint and survivor annuities (“QJSAs”) to same-sex spouses and Section 401(k) plans would probably have to require same-sex spouses to consent to beneficiary designations.  Any Supreme Court decision would likely take effect immediately, leaving employers to scramble if they have not previously given thought to how a decision overturning DOMA might impact their employee benefit plans.  If the Supreme Court grants certiorari in the DOMA cases, we intend to publish a newsletter explaining the impact such a decision could have on employee benefit plans and the issues employers should consider in advance.  
• Review 2013 Plan Limits:  Familiarize yourself with the 2013 plan limits.  See “Retirement Plan Limits for 2013” 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 3, 2012 for Calendar Year Plans: As a reminder, if your plan has a Section 401(k)/401(m) contribution safe harbor, you 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 3, 2012 for calendar year plans).
• Provide Annual Automatic Enrollment Notice by December 3, 2012 for Calendar Year Plans: As a reminder, if your plan has an automatic contribution arrangement, an eligible automatic contribution arrangement (“EACA”), or a qualified automatic contribution arrangement (“QACA”), or any combination thereof, you 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 3, 2012 for calendar year plans).
• Provide Annual Qualified Default Investment Alternative Notice by December 3, 2012 for Calendar Year Plans: If you are relying on the qualified default investment alternative (“QDIA”) safe harbor, you 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 3, 2012 for calendar year plans).
• Comply with Required Minimum Distribution Waiver for 2009:  The Worker, Retiree, and Employer Recovery Act of 2008 waived required minimum distributions (“RMDs”) for 2009. Plan sponsors must adopt conforming amendments by the last day of the first plan year beginning on or after January 1, 2011 to reflect the waiver of 2009 RMDs. See “IRS Issues Additional Guidance on the Waiver of 2009 Required Minimum Distributions” in our November 2009 Employee Benefits Update for more information.
• Provide Participant Fee Disclosure Information: Under recently issued regulations, plans are required to provide information to participants regarding the plan and the plan’s investment options, including the fees and expenses associated with the designated investment options.  Plans were required to provide the initial disclosures to plan participants by August 30, 2012.  Plans also need to provide quarterly disclosures on the fees deducted from a participant’s account.  The first quarterly disclosure is due on November 14, 2012.  For more information, see “Department of Labor Issues Final Fee Disclosure Regulation for Qualified Plans” in our March 2012 Employee Benefits Update.
• 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:  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 2013, Adopt Amendment Before the 2013 Plan Year:  Neither a QACA nor an EACA may be adopted mid-year. Accordingly, if you wish to add a QACA or an EACA to your plan for the 2013 plan year, you must adopt an amendment by December 31, 2012 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 3, 2012 for Calendar Year Plans:  If you are relying on the qualified default investment alternative (“QDIA”) safe harbor, you 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 3, 2012 for calendar year plans).
• Comply with Required Minimum Distribution Waiver for 2009:  The Worker, Retiree, and Employer Recovery Act of 2008 waived required minimum distributions (“RMDs”) for 2009. Plan sponsors must adopt conforming amendments by the last day of the first plan year beginning on or after January 1, 2011 (i.e., December 31, 2011 for calendar year plans) to reflect the waiver of 2009 RMDs. See “IRS Issues Additional Guidance on the Waiver of 2009 Required Minimum Distributions” in our November 2009 Employee Benefits Update for more information.
• Provide Participant Fee Disclosure Information: Under recently issued regulations, plans are required to provide information to participants regarding the plan and the plan’s investment options, including the fees and expenses associated with the designated investment options.  Plans were required to provide the initial disclosures to plan participants by August 30, 2012.  Plans also need to provide quarterly disclosures on the fees deducted from a participant’s account.  The first quarterly disclosure is due on November 14, 2012.  For more information, see “Department of Labor Issues Final Fee Disclosure Regulation for Qualified Plans” in our March 2012 Employee Benefits Update.
• 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:  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:  The Pension Protection Act of 2006 requires a sponsor of a defined benefit pension plan that maintains an intranet website for the purpose of communicating with employees (and not the public) to post portions of the defined benefit plan’s Form 5500 on the intranet.   
• Comply with Annual Funding Notice to Participants:  The Pension Protection Act of 2006 requires single employer defined benefit plan sponsors to 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. 
• Comply with PBGC Notice Requirement if Funding Target Attainment Percentage is Less than 80%:  Plan sponsors of defined benefit plans are required to notify the PBGC if the plan has a funding target attainment percentage of less than 80%.  This filing is due within 105 days following the end of the plan sponsor’s fiscal year, which is April 15, 2013 for calendar year taxpayers. 
• Provide Participant Benefit Statements:  The Pension Protection Act of 2006 requires defined benefit plans to 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 2011-96 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, 2012, (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. This means that calendar year, non-collectively bargained plans must be amended by December 31, 2012.
• 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 you made any design changes to the plan during the year, you generally must amend your plan to reflect those design changes by the last day of the 2012 plan year (i.e., December 31, 2012 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 your Section 403(b) plan is subject to ERISA, consider whether your SPD needs 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).
• Consider Impact on Employee Benefit Plans if Supreme Court Grants Certiorari in Defense of Marriage Act (“DOMA”) Cases:  There is a strong possibility that the Supreme Court may grant certiorari this term in a series of cases challenging Section 3 of DOMA.  Section 3 of DOMA currently provides that for purposes of federal law, “marriage” means only a legal union between one man and one woman as husband and wife.  Under this same Section of DOMA, “spouse” refers only to a person of the opposite sex who is a husband or wife.  DOMA does not invalidate same-sex marriages, but under DOMA certain federal benefits can only flow to opposite-sex spouses.  DOMA affects employee benefit plans because, while DOMA is the law, employers are generally free to choose whether to offer benefits to same-sex spouses.  If the Supreme Court grants certiorari and decides that Section 3 of DOMA is unconstitutional, it will have a significant impact on employee benefit plans and employer choices.  For example, all Section 403(b) plans would probably have to require same-sex spouses to consent to beneficiary designations.  Any Supreme Court decision would likely take effect immediately, leaving employers to scramble if they have not previously given thought to how a decision overturning DOMA might impact their employee benefit plans.  If the Supreme Court grants certiorari in the DOMA cases, we intend to publish a newsletter explaining the impact such a decision could have on employee benefit plans and the issues employers should consider in advance.  
• Review 2013 Plan Limits:  Familiarize yourself with the 2013 plan limits.  See “Retirement Plan Limits for 2013” for more information.
• Provide Safe Harbor Notice by December 3, 2012 for Calendar Year Plans:  As a reminder, if your Section 403(b) plan uses an ACP contribution safe harbor, you 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 3, 2012 for calendar year plans).
• Provide Annual Automatic Enrollment Notice by December 3, 2012 for Calendar Year Plans:  As a reminder, if your Section 403(b) plan is subject to ERISA and has automatic deferrals, you 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 3, 2012 for calendar year plans).
• Provide Annual Qualified Default Investment Alternative Notice by December 3, 2012 for Calendar Year Plans: As a reminder, if your Section 403(b) plan is subject to ERISA and you are relying on the qualified default investment alternative (“QDIA”) safe harbor, you 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 3, 2012 for calendar year plans).
• Comply with Required Minimum Distribution Waiver for 2009: The Worker, Retiree, and Employer Recovery Act of 2008 waived required minimum distributions (“RMDs”) for 2009. Plan sponsors must adopt conforming amendments by the last day of the first plan year beginning on or after January 1, 2011 (i.e., December 31, 2011 for calendar year plans) to reflect the waiver of 2009 RMDs. See “IRS Issues Additional Guidance on the Waiver of 2009 Required Minimum Distributions” in our November 2009 Employee Benefits Update for more information.
• Provide Participant Fee Disclosure Information: Under recently issued regulations, Section 403(b) plans that are subject to ERISA are required to provide information to participants on the plan and the plan’s investment options, including the fees and expenses associated with the available investment options.  Plans were required to provide the initial disclosures to plan participants by August 30, 2012.  Plans also need to provide quarterly disclosures on the fees deducted from a participant’s account.  The first quarterly disclosure is due on November 14, 2012.  For more information, see “Department of Labor Issues Final Fee Disclosure Regulation for Qualified Plans” in our March 2012 Employee Benefits Update.
• 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 2013, Adopt Amendment Before the 2013 Plan Year:  ACP contribution safe harbors may not be adopted mid-year. Accordingly, if you wish to add an ACP contribution safe harbor to your Section 403(b) plan for the 2013 plan year, you must adopt an amendment by December 31, 2012 for calendar year plans.
• Comply with New 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).

Health and Welfare Plans “To Do” List    

• 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 whether your SPD needs to be updated. 
• Continue to Track and Comply with Health Care Reform Changes:  As reported in our August 16, 2012 Health Care Reform Legal Alert, “Health Care Reform Compliance Checklist for Plan Sponsors,” now that the Supreme Court has upheld the constitutionality of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “Act”), employers should move forward with implementation. Below, we have focused on the health care reform changes that most immediately affect employer group health plans.  See the attached checklist that provides a summary of the principal requirements under the Act, beginning with those that first became effective in 2010 and continuing through those that will become effective in 2018.  The purpose of this checklist is to provide a summary of the principal requirements under the Act that apply to employer-sponsored group health plans. The Act and its related guidance go into much more detail and should always be consulted when considering its application to any particular plan.
• If a Group Health Plan is a Grandfathered Plan, Review Grandfathered Status: Group health plans that were in existence on or before March 23, 2010 and that have not undergone significant changes since then (“grandfathered plans”) have to comply with some, but not all, of the requirements under the Act. Employers that have made any changes to their health plans or added a wellness component in 2012, or in connection with open enrollment for an upcoming plan year, should consider whether those changes cause the plan to lose grandfathered status.  If grandfathered plan status is lost, the plan must comply with additional requirements that apply to non-grandfathered plans as of the date grandfathered status is lost.
• Comply With Increased Restricted Annual Limit: As reported in our November 2011 End of Year Plan Sponsor “To Do” Lists, employer-sponsored group health plans may continue to impose annual (as opposed to lifetime) limits on reimbursements for essential health benefits between now and January 1, 2014, but those limits must comply with regulations jointly issued by the Departments of Health and Human Services, Treasury and Labor (collectively “the Departments”). The restricted annual limit for plan years beginning on or after September 23, 2011, but before September 23, 2012, was $1,250,000. For plan years beginning on or after September 23, 2012, but before January 1, 2014, the restricted annual limit has increased to $2,000,000. Annual limits are prohibited for plan years beginning on or after January 1, 2014. See “Agencies Publish Guidance on Pre-Existing Condition Exclusions, Lifetime and Annual Limits, Rescissions and Other Patient Protections” in our July 13, 2010 Health Care Alert for more information.
• Provide Four-Page Summary of Benefits and Coverage: As reported in our July 19, 2012 Health Care Reform Legal Alert, “Summary of Benefits and Coverage for Group Health Plans,” the Act expands ERISA’s disclosure requirements by requiring group health plans to provide a summary of benefits and coverage (“SBC”) to applicants and enrollees at various times, including initial enrollment, open enrollment, special enrollment and upon request.  The SBC cannot exceed four, double-sided pages, resulting in eight pages and cannot include print smaller than 12-point font.  It must be in the same form as the template issued by the Departments.   The SBC is intended to provide participants with an “apples-to-apples” comparison of their own employer’s health plan options, as well as their significant other’s health plan options.  The SBC requirement applies beginning with the first open enrollment period beginning on or after September 23, 2012.  Most group health plans will have to distribute SBCs with the open enrollment materials going out in the fall of 2012.
• Provide 60-Day Advance Notice of Changes Impacting Four-Page Summary: As reported in our July 19, 2012 Health Care Reform Legal Alert, “Summary of Benefits and Coverage for Group Health Plans,” the Act requires group health plans to give participants 60-days advance notice before making any material modification in plan benefits or coverage that is not reflected in the most recently provided SBC. This applies to both benefit enhancements and reductions.  Group health plans become subject to this new advance notice requirement once they issue SBCs.  
• Implement W-2 Reporting of the Cost of Employer-Sponsored Group Health Plan Coverage: As reported in our July 26, 2012 Health Care Reform Legal Alert, “W-2 Reporting of Employer-Sponsored Group Health Coverage,” beginning with the Form W-2 issued in January 2013 (i.e., the Form W-2 issued for the 2012 calendar year), employers must report to employees the cost of their employer-sponsored group health plan coverage. This reporting is for informational purposes only and is intended to communicate the cost of health care coverage to employees.  It does not change how such benefits are taxed.  As a general rule, all employers who provide applicable employer-sponsored coverage (primarily medical coverage, but other group health benefits may be subject to the reporting requirement as well) during the calendar year must comply.  Until further guidance is issued, an employer is not subject to the new reporting requirements for any calendar year if the employer filed fewer than 250 Forms W-2 for the preceding calendar year.  To comply with this new requirement, employers will need to: (1) assess the applicable employer-sponsored coverage that is provided to each employee; (2) calculate the aggregate cost of such coverage for each employee; and (3) report that cost on each employee’s Form W-2, in box 12, using code DD.  Employers should make sure systems are in place to track employee coverage and coordinate with their finance, payroll and human resources staff and vendors to ensure accurate reporting.
• Cover Additional Preventive Services for Women in Non-Grandfathered Health Plans: On August 3, 2011, the Departments issued an amendment to the Act’s preventive care requirement. The new rules require non-grandfathered group health plans to additionally cover women’s preventive services without charging a co-payment, co-insurance or a deductible. This rule is intended to make sure women have access to a full range of recommended preventive services without cost sharing, including: well-woman visits; screening for gestational diabetes; human papillomavirus (HPV) DNA testing for women 30 years and older; sexually-transmitted infection counseling; human immunodeficiency virus (HIV) screening and counseling; FDA-approved contraception methods and contraceptive counseling; breastfeeding support, supplies and counseling; and domestic violence screening and counseling. Non-grandfathered health plans will need to cover these services without cost sharing for plan years beginning on or after August 1, 2012 (i.e., January 1, 2013 for calendar year plans). On January 20, 2012, the Departments announced that nonprofit employers who, based on religious beliefs, do not currently provide contraceptive coverage, will be provided an additional year, until August 1, 2013, to comply. 
• Consider Impact of Medical Loss Ratio Rebates: As reported in our July 12, 2012 Health Care Reform Legal Alert, “Health Care Reform’s Medical Loss Ratio Rebates and Their Impact on Employer Group Health Plans,” insurance companies in the individual and small group health insurance markets must spend at least 80% of the premium dollars they collect on medical care and quality improvement activities, whereas insurance companies in the large group market must spend at least 85% of the premium dollars they collect on medical care and quality improvement activities. This is known generally as the MLR standard. Insurance companies that fail to satisfy the MLR standard must provide a rebate to their subscribers by August 1st of the following calendar year.  Insurance carriers were required to make the first round of MLR rebates by August 1, 2012.  Group policyholders must ensure that the rebate is used for the benefit of plan participants.  ERISA fiduciary principles apply to the portion of any MLR rebate that is considered a plan asset, as does the requirement that any refunds or premium holidays that are provided to plan participants be completed within three months of receipt of the rebate.  Plan sponsors should consider how they will handle any MLR rebates they receive and also be prepared for potential questions from plan participants, who will also receive notice regarding any MLR rebate provided to the plan sponsor.
• Comply with Independent Review Organization Requirements for Non-Grandfathered Health Plans:  The Act requires non-grandfathered health plans to incorporate enhanced internal claims and appeals requirements and external review procedures.  The Department of Labor provided a safe harbor for self-funded ERISA plans subject to the new external review procedures, which required that such plans contract with at least three independent review organizations (“IROs”) and rotate claims assignments among the IROs.  However, the deadline for contracting with the IROs was extended, and plans relying on the safe harbor were required to contract with at least two IROs by January 1, 2012 and with at least three IROs by July 1, 2012.  Since the July 1, 2012 deadline has passed, plan sponsors of self-funded non-grandfathered ERISA plans who are relying on the safe harbor should make sure that their external review procedures comply with this requirement.
• Amend Health Flexible Spending Accounts to Reflect the $2,500 Cap on Salary Reduction Contributions:  As reported in our August 1, 2012 Health Care Reform Legal Alert, “$2,500 Cap on Salary Reduction Contributions to Health Flexible Spending Accounts,” prior to health care reform, the Code did not limit the amount that could be contributed to a health flexible spending account (a “health FSA”).  The $2,500 cap applies to plan years beginning on or after January 1, 2013.  Plans that currently have a health FSA limit in excess of $2,500 will have to be amended to reflect the $2,500 limit. Cafeteria plans must normally be amended in advance of the effective date of a change.  However, IRS Notice 2012-40 provides that plans may adopt retroactive amendments to reflect the $2,500 cap at any time before December 31, 2014, provided that the plan operates in accordance with the $2,500 limit in the meantime.
• Large Employers Should Start to Consider How They Will Comply with the “Pay or Play” Mandate:  In 2014, large employers will be subject to a penalty if either: (1) the employer fails to offer to its full-time employees the opportunity to enroll in minimum essential coverage and any full-time employee is certified to receive a premium tax credit or cost-sharing reduction; or (2) the employer offers its full-time employees the opportunity to enroll in minimum essential coverage and one or more full-time employees are certified to receive a premium tax credit or cost-sharing reduction because the employer’s coverage either is not affordable or does not provide minimum value.  A full-time employee is an employee who, with respect to any month, is employed on average at least 30 hours per week.  The IRS has issued guidance that describes safe harbor methods that employers may use to determine which employees are considered full-time employees.  These methods involve different look back measurement periods of between three and 12 months (within the employer’s discretion) and may be helpful for employers whose employees work variable or seasonal hours.  Even though the employer mandate does not go into effect until 2014, because full-time employees may be defined based on 2013 service, if a large employer chooses to rely on the IRS safe harbors, employers should take steps now to determine how it will identify full-time employees and what strategies it wants to implement to comply with the mandate.
• Provide Health Benefit Exchange Notice: By January 1, 2014, each state must establish a Health Benefit Exchange.  The Act will require most employers to provide all new hires and current employees with a written notice about the Health Benefit Exchange and the consequences of purchasing coverage through an Exchange rather than employer-sponsored coverage. The notice must include certain specified information, including the following: (1) the existence of the Exchange; (2) a description of the services provided by the Exchange and how to contact the Exchange to request assistance; (3) eligibility for premium tax credits or cost-sharing reductions through the Exchange if the employer plan’s share of the total cost of benefits under the plan is less than 60%; and (4) an explanation that:  (i) if the employee purchases a qualified health plan through the Exchange, then the employee may lose any employer contribution toward the cost of employer-provided coverage; and (ii) all or a portion of employer contributions to employer-provided coverage may be excludable for federal income tax purposes.  HHS plans to issue model notices. The notice requirement is generally effective for employers beginning on March 1, 2013. Employees hired on or after the effective date must be provided notice at the time of hiring. Employees employed on the effective date must be provided notice no later than March 1, 2013. 
• Gear Up to Report and Pay PCORI Fees:  As reported in our August 9, 2012 Health Care Reform Legal Alert, “Health Care Reform’s New Research Fees: What Employers Need to Know,” the Act imposes new fees on health insurance issuers and sponsors of self-funded health plans to fund research conducted by the Patient-Centered Outcomes Research Institute (“PCORI Fees”). The fees must be reported on the Form 720, Quarterly Federal Excise Tax Return and paid for plan or policy years ending on or after October 1, 2012 and before October 1, 2019. For health insurance issuers and plan sponsors of self-funded plans with calendar-year policy or plan years, the first Form 720 and payment is due July 31, 2013.  The PCORI Fees apply primarily to medical plans, retiree-only plans and health reimbursement arrangements; however, other group health benefits may be subject to the fees as well. For insured policies, health insurance issuers are responsible for reporting and paying the PCORI Fees. For self-funded plans, plan sponsors are responsible for reporting and paying the PCORI Fees.  The PCORI Fees for a plan or policy year is equal to the average number of lives covered under the plan or policy multiplied by an applicable dollar amount. For the first year, the applicable dollar amount is $1.  This amount increases to $2 in the second year and future increases are based on increases in the projected per capita amount of National Health Expenditures released by the HHS.  Plan sponsors and insurers have alternatives for calculating the average number of covered lives.
• Consider Impact on Employee Benefit Plans if Supreme Court Grants Certiorari in Defense of Marriage Act (“DOMA”) Cases:  There is a strong possibility that the Supreme Court may grant certiorari this term in a series of cases challenging Section 3 of DOMA.  Section 3 of DOMA currently provides that for purposes of federal law, “marriage” means only a legal union between one man and one woman as husband and wife.  Under this same Section of DOMA, “spouse” refers only to a person of the opposite sex who is a husband or wife.  DOMA does not invalidate same-sex marriages, but under DOMA certain federal benefits can only flow to opposite-sex spouses.  DOMA affects employee benefit plans because, while DOMA is the law, employers are generally free to choose whether to offer benefits to same-sex spouses.  If the Supreme Court grants certiorari and decides that Section 3 of DOMA is unconstitutional, it will have a significant impact on employee benefit plans and employer choices.  For example, on the welfare plan side, same-sex spouses, for federal tax purposes, would be treated the same as opposite-sex spouses.  If DOMA is overturned, it could even impact an employer’s decision to provide domestic partner benefits.  Any Supreme Court decision would likely take effect immediately, leaving employers to scramble if they have not previously given thought to how a decision overturning DOMA might impact their employee benefit plans.  If the Supreme Court grants certiorari in the DOMA cases, we intend to publish a newsletter explaining the impact such a decision could have on employee benefit plans and the issues employers should consider in advance. 
• Distribute Summary Annual Report:  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.

Executive Compensation “To Do” List

• Last Chance to Correct for Certain Section 409A Release Timing Document Failures Without Penalty:  As reported in our October 3, 2012, Legal Alert, “Transition Relief for Correction of Section 409A Release Agreement Timing Failures Expires on December 31, 2012,” change in control, severance, employment and other deferred compensation agreements that are subject to Section 409A of the Code (“Section 409A”), and require an employee to sign a release to receive payment, should be reviewed for compliance with Section 409A’s release timing rules by December 31, 2012.

In Notice 2010-6, the IRS indicated that, in certain circumstances, since the consideration and revocation period described in a release provision included in a nonqualified deferred compensation agreement could span two years, an employee has the ability to pick the calendar year the payment will be made (by either accelerating or delaying the signing of the release), which violates the requirements of Section 409A. The IRS initially suggested that the “fix” for this problem would be to modify the arrangement to provide that payment would be made on the last day of either a 60- or 90-day period following the employee’s termination of employment.  In Notice 2010-80, the IRS offered an additional solution to this issue, namely an amendment to provide that payment will be made in the second taxable year if the period during which the employee may consider and revoke a release spans two calendar years.

Employers that address these release timing failures prior to December 31, 2012 may be able to correct violations of Section 409A’s release timing rules without taxes and penalties and, in some cases, without additional disclosure to the IRS.

• Consider Shareholder Reapproval of Section 162(m) Performance Compensation Plans Approved in 2008:  Section 162(m) of the Code limits the deduction a public company may take for compensation payable to “covered employees” to $1,000,000 per year. “Performance-based compensation” that meets the requirements of Section 162(m) is not subject to this limitation.  The Section 162(m) regulations require that shareholders reapprove the performance goals with respect to which “performance-based compensation” is paid every five years. This means that companies that obtained shareholder approval of plans containing Section 162(m) performance goals in 2008 must resubmit the plans for shareholder approval in 2013. This is generally done by having the shareholders reapprove a new incentive plan that provides for the award of compensation that complies with Section 162(m).
• Code Section 6039 Information Statements Due by January 31, 2013: Section 6039 of the Code requires companies to file a return and provide a written information statement to each employee or former employee regarding:  (1) the transfer of stock pursuant to the exercise of an Incentive Stock Option (“ISO”); and (2) the transfer by the employee or former employee of stock purchased under an Employee Stock Purchase Plan (“ESPP”).  Section 6039 applies to stock purchased under an ESPP if the stock was purchased at a permitted discount.  For ISO grants and ESPP transfers occurring in 2012, the Section 6039 information statements must be provided no later than January 31, 2013. 
• Review Grant Procedures for Upcoming Equity-Based Grants:  The stock option backdating scandals were solemn reminders of serious corporate, tax, accounting and legal issues that can be resolved by an employer carefully reviewing its grant practices and procedures.  An employer should carefully review its stock plan to determine which entity is charged with making grants under the plan and put in place best practice procedures to ensure the proper entity takes the appropriate action as of the date the awards are considered granted.
• Consider Taking Action to Avoid Higher Taxes in 2013: Effective January 1, 2013, higher earning individuals must pay higher Medicare taxes.  Starting in 2013, the HI employee portion of the FICA tax will increase to 2.35% (from its current 1.45%) on wages over $200,000 for individuals and $250,000 for married individuals filing a joint return.  In addition, a new 3.8% Medicare contribution tax will be imposed on individuals and families on the lesser of (i) modified adjusted gross income in excess of $200,000 for individuals and $250,000 for married individuals filing a joint return, or (ii) “net investment income” derived from interest, dividends, annuities, royalties, rents, gross income from a trade or business, and net gains from the disposition of property less the deductions allocable to such income.  Net investment income does not include distributions from qualified pension, profit sharing and 401(k) plans.

To prepare for the increased Medicare taxes in 2013, higher earning individuals should consider whether it makes sense to accelerate income inclusion to 2012.  For example, employees with vested, unexercised stock options and vested restricted stock may consider exercising the options and selling the restricted shares before the end of the year.

Retirement Plan Limits for 2013
The key 2013 dollar amounts (compared to the 2012 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.