- Year-End Deadlines and Other Developments for Employee Benefit Plans
- September 28, 2008 | Authors: J. Paul Jacobson; Robert D. Rothacker; David P. Olson; Amy A. Ciepluch; Sarah M. Linsley; Kerri A. Hutchison
- Law Firms: Quarles & Brady LLP - Milwaukee Office; Quarles & Brady LLP - Chicago Office; Quarles & Brady LLP - Milwaukee Office
As we look ahead to the end of 2008, plan sponsors of employee benefit plans should be aware of upcoming deadlines for amending plan documents. These deadlines apply to defined benefit plans, 401(k) plans, 403(b) plans and any arrangements covered under Internal Revenue Code Section 409A. Plan sponsors should also note upcoming deadlines for submitting plans to the IRS for determination letters. Below is a list of changes for benefit plans for the 2008 and 2009 calendar years.
December 31, 2008 Deadlines
- 409A Regulations. All arrangements subject to Internal Revenue Code Section 409A must be amended to comply with the Code §409A final regulations by December 31, 2008. Code §409A applies to a broad array of deferred compensation arrangements, which may include nonqualified plans, supplemental plans, bonus plans, employment agreements providing for deferred compensation or severance, severance plans and equity plans. Section 409A does not apply to qualified plans such as 401(k) plans.
While the IRS has previously extended the deadline for bringing plans into compliance with Code §409A, the December 31, 2008 deadline is final. Employers who have not already done so must review the above-listed arrangements and plans to determine which arrangements are subject to Code §409A. Plan amendments, if required, may require the consent of individual participants or the board of directors, so employers should act soon to ensure that all amendments are properly executed by December 31, 2008.
- 403(b) Regulations. The IRS issued new regulations under Internal Revenue Code Section 403(b) in July 2007. These regulations made sweeping changes to 403(b) plans. Schools and tax-exempt organizations sponsoring 403(b) plans should determine the changes necessary to comply with these new regulations. All 403(b) plans must be in compliance with the new regulations by December 31, 2008.
The main features of the new regulations are as follows:
- All 403(b) programs must be maintained pursuant to a written plan. The written plan must contain all the terms and conditions for eligibility, limitations and benefits under the plan.
- 403(b) plans must be offered to all eligible employees, with certain limited exceptions. An annual written notification of eligibility must be provided to all employees eligible to contribute to the 403(b) plan.
- Contract exchanges are only permitted if specifically authorized by the plan and if the employer sponsoring the plan has an "information sharing agreement" in place with the receiving vendor.
- In-service, plan-to-plan 403(b) asset transfers are limited to situations where the participant is an employee or former employee of the employer sponsoring the receiving plan.
2009 Deadlines and Plan Changes
- 415 Regulations. New regulations were issued under Internal Revenue Code Section 415 in April 2007. The regulations describe post-severance and post- year-end compensation. The regulations are effective for plan years beginning on or after July 1, 2007. Plans are required to be amended by the deadline for filing the employer’s tax return for the year in which the change is effective. For calendar year plans, this means that the plan must be amended to comply with the 415 regulations by the deadline, including extensions, for filing the employer’s 2008 tax return.
- Pension Protection Act. The Pension Protection Act (PPA) was passed in August 2006. The PPA contains numerous requirements for qualified plans, such as changes in actuarial assumptions and funding rules and the addition of a joint and 75% survivor annuity for defined benefit plans; elimination of the "whipsaw" and changes to the vesting rules for cash balance plans; and a non-spousal rollover and beneficiary hardship withdrawal option for all types of qualified plans. While plans are required to comply with these changes in operation now, amendments reflecting the changes do not need to be formally adopted until the end of the first plan year beginning on or after January 1, 2009. If your plan year is the calendar year, the amendments must be adopted by December 31, 2009.
- HEART Act. The Heroes Earnings Assistance Relief Tax (HEART) Act was passed in June 2008. Plan amendments to comply with the HEART Act are not required until the last day of the plan year that begins on or after January 1, 2010. However, plan sponsors should be aware of provisions of the HEART Act that are effective in 2009 or earlier. For example, plans must treat participants who die while performing qualified military service on or after January 1, 2007, as if they were reemployed on the date before death. This entitles participants who die while performing qualified military service to any additional benefits (e.g., accelerated vesting) that would have been provided to them if they had been reemployed and then terminated as a result of death. Additionally, effective January 1, 2009, any employers providing differential pay for military duty must treat the differential pay as wages for federal income tax withholding purposes and as compensation for retirement plan purposes.
- IRS Determination Letters. Employers whose employer identification number (EIN) ends with “3” or “8” and all governmental plans are Cycle C filers and must submit their individually designed (non-prototype) plans to the IRS by January 31, 2009, if they are seeking a determination letter for the plan. Employers whose EIN ends in “4” or “9” are Cycle D filers. Cycle D filers may submit their individually designed plans to the IRS for a determination letter from February 1, 2009 through January 31, 2010.