[authors:
Peter Salomon,
Beth Alcalde,
Ian Minkin and
Leanne Reagan]
As the end of the year approaches, employers and plan sponsors of certain retirement plans, health and welfare plans and deferred compensation arrangements have a number of year-end tasks and deadlines. Failure to comply with the deadlines may result in penalties and excise taxes. This Practice Update highlights recent benefit updates and some of the common year-end tasks and deadlines that may apply to employers and plan sponsors of calendar year plans.
Retirement Plans
The following is a summary of some of the upcoming deadlines related to certain calendar year qualified retirement plans:
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 information by December 1st.
401(k) Automatic Enrollment Notice – If a plan provides for automatic enrollment, the plan administrator must provide eligible employees with an annual notice, no later than December 1st, that describes the circumstances in which they may be automatically enrolled in the plan.
Qualified Default Investment Alternative (“QDIA”) Notices for Participant Directed Plans – Plan sponsors of defined contribution plans with participant-directed investments must provide the annual QDIA notices to participants or beneficiaries no later than December 1st.
Employer Stock Diversification Notices for Participant Directed Plans – Plan sponsors of defined contribution plans with participant-directed investments in employer stock must provide diversification notices no later than December 1st to participants who will first be eligible to divest employer securities on January 1st.
Discretionary Amendments – Plan sponsors who made operational changes to their retirement plans during the year must generally amend their plan documents to reflect such changes no later than December 31st.
Determination Letter Requests - Plan sponsors with employer identification numbers (“EINs”) ending in “2” or “7”, as well as any multiple employer plans, must amend and restate their individually-designed qualified retirement plans and file them with the IRS for a determination letter no later than January 31, 2013.
SPDs and SMMs – Summary plan descriptions (“SPDs”) must be revised or summaries of material modifications (“SMMs”) must be created to inform participants of substantive changes to a retirement plan. The SMM or SPD must be distributed no later than 210 days after the plan year in which the amendment is adopted.
Welfare Plans
The following is a summary of some of the upcoming deadlines related to certain calendar year welfare plans:
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Discretionary Amendments – Plan sponsors who made operational changes to their welfare plans during the year must generally amend their plan documents to reflect such changes no later than December 31st.
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W-2 Reporting Requirement – Employers must begin listing the aggregate cost of employer-sponsored group health coverage on every covered employee’s Form W-2 for 2012. Form W-2’s must be distributed no later than January 31st.
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SPDs, SMMs and Notice of Rescission – SPDs must be revised or SMMs must be created to inform participants of substantive changes to a welfare plan. The SMM or SPD must be distributed no later than 210 days after the plan year in which the amendment is adopted, or if there is a material reduction in covered services or benefits under the welfare plan, it must be distributed no later than 60 days after the date of adoption of the modification or change. In addition, before coverage under a plan may be rescinded, at least 30 days advance written notice must be provided to each participant who would be affected.
Non-Qualified Deferred Compensation Arrangements
The following is a summary of some of the upcoming deadlines related to certain non-qualified deferred compensation arrangements:
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Section 409A Relief for Payments Contingent Upon Release – For nonqualified deferred compensation arrangements in existence as of December 31, 2010, employers may take advantage of certain transitional relief offered by the IRS as long as such arrangements are amended by December 31, 2012. For more information on this transitional relief please see our previous Practice Update.
Other
Below is a summary of some of the recent changes and upcoming deadlines that may affect employers and employees:
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Leave Donation Programs to Aid Hurricane Sandy Victims – The IRS announced that employees may donate their vacation, sick or personal leave in exchange for employer cash payments made before January 1, 2014 to qualified tax-exempt organizations providing relief for victims of Hurricane Sandy. The donated leave will not be included in the income or wages of the employees. Employers will be permitted to deduct the amount of the cash payment.
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Expiration of Employer-Paid Educational Assistance – The educational assistance program under Section 127 of the Internal Revenue Code, which provides employees up to $5,250 annual exclusion from income and employment taxes for employer-provided education assistance, is set to expire at the end of the year unless an additional extension is provided. The 2010 Tax Relief Act extended the exclusion through December 31, 2012. If the exclusion is not further extended, employer-paid educational assistance will be excludible from gross income only if it qualifies under the narrower working condition fringe benefit rules.
Summary of Upcoming Deadlines
The chart below highlights some of the upcoming deadlines that may apply to an employer or plan sponsor’s retirement and welfare plans, as well as non-qualified deferred compensation arrangements:
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AMENDMENTS AND NOTICES
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DEADLINES
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TYPE OF PLAN(S) AFFECTED
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Safe harbor 401(k) plan notices*.
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December 1, 2012
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401(k)
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Automatic 401(k) enrollment notices*.
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December 1, 2012
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401(k)
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QDIA notices* for participant-directed retirement plans.
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December 1, 2012
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Participant- Directed Retirement
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Employer stock diversification notices* for participant-directed retirement plans.
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December 1, 2012
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Participant- Directed Retirement
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Amendments to plan documents* reflecting any operational changes made during 2012.
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December 31, 2012
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Retirement and Welfare
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Section 409A amendments to arrangements where payment is contingent on a release.
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December 31, 2012
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Non-qualified Deferred Compensation
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Employer-paid educational assistance is set to expire.
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December 31, 2012
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Educational Assistance Programs
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Cycle B determination letter request.
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January 31, 2013
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Retirement
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W-2 reporting of the aggregate cost of employer-sponsored health care coverage
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January 31, 2013
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Welfare
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Revisions of SPDs or SMMs must be created to inform participants of substantive changes to the plan.
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210 days after the plan year in which the amendment is adopted or in the case of welfare plans, 60 days after the amendment is adopted if there is a material reduction in services or benefits **
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Retirement and Welfare
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Leave donation payments to be made for Hurricane Sandy relief.
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January 1, 2014
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Leave-Donation Programs
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*For calendar-year plans. **Although a plan sponsor has 210 days to unilaterally provide an SMM, it must be prepared to provide an SMM within 30 days following a request by a participant. In addition, 30 days advance notice must be provided before coverage under a welfare plan may be rescinded.
