This is our year-end advisory reminding you to review your employee benefit plans to be sure they are up to date with the latest requirements. For non-qualified deferred compensation plans, the deadline for complying with the final regulations is December 31, 2008. For 403(b) Plans, the deadline for complying with the final regulations is also December 31, 2008. For qualified retirement plans, the deadline for complying with the latest IRS Cumulative List is March 15, 2009.
Non-Qualified Deferred Compensation Arrangements
Non-qualified deferred compensation plans or arrangements must comply in writing with the requirements of Code Section 409A and the final regulations by December 31, 2008. All non-qualified deferred compensation arrangements should be reviewed and, if necessary, amended by this deadline. Section 409A defines deferred compensation broadly, and includes many arrangements that typically are not thought of as deferred compensation. Examples of arrangements that should be examined for 409A compliance include:
- Traditional deferred compensation agreements
- Supplemental retirement plans
- Employment and consulting agreements
- Severance agreements and plans
- Bonus and performance incentive plans
- Equity and equity-based plans, including stock option plans
- Change in control agreements
If your non-qualified plan does not comply with these requirements, the participants in the plan will suffer some harsh penalties, including immediate taxation of their vested deferred compensation benefits, plus interest and a 20% excise tax.
403(b) Plan Documents
Employees of charitable organizations and public schools may set aside money on a pre-tax basis pursuant to a 403(b) plan or arrangement which is similar to a 401(k) plan. The IRS has issued final regulations governing 403(b) plans and these become effective January 1, 2009. The new regulations require all 403(b) plans to have written plan documents and these must be in place by December 31, 2008. If you have not brought your 403(b) program up to date with the regulations, you should begin to do so immediately. Rumors of a delay in the regulations have been circulating, but so far, the IRS has not announced any delay in the effective date for the regulations.
Qualified Retirement Plans
Qualified retirement plans that are based on individually designed documents must be amended every year to include all of the items on the IRS’ cumulative list for the year. The 2007 list which applies to plan years beginning in 2008 includes the following items, some of which are required and some optional:
- Definition of compensation for maximum additions and benefits, and determining highly compensated employees – required.
- Availability of hardship withdrawals for uninsured medical care expense, educational expenses and funeral expenses incurred by a participant’s designated beneficiary – optional.
- Non-spouse beneficiary rollover option – optional.
- Provisions in defined benefit plans regarding phased retirement – optional.
- Applications for IRS determination letters must be filed by January 31 for plans of employers whose EIN ends in 3 or 8. Applications for governmental plans are also required by January 31, 2009 unless the governmental authority wishes to take advantage of a recently announced opportunity to defer the application until Cycle E which requires an application to be filed between February 1, 2010 and January 31, 2011.
Medicare Creditable Coverage Notices
The Medicare Part D Creditable Coverage Notice to participants (or family members) eligible for Medicare coverage were due by November 15, 2008. In addition, plan sponsors have an obligation file an on-line notice with CMS (U.S. Centers for Medicare and Medicaid Services) of creditable status and the number of affected participants. This is an electronic notice that is due within 60 days of the start of the plan year, which is March 1, 2009 for the 2009 plan year for calendar year plan years. Later dates apply for non-calendar year plans.
This is a very simple procedure in which a plan must disclose its name, whether the prescription drug coverage is creditable or not and the estimated number of people affected by the notice.
Action Steps
We will be happy to work with you to bring your plans into compliance with the latest requirements. Please call us as soon as possible if you have a non-qualified plan or 403(b) plan that needs to be updated. We are ready to work with you to meet these requirements, but time is running short and the holidays are approaching. We wish you all the best for the holidays.
For more information, contact any member of the Employee Benefits team.