• Important 2009 Year-End Plan Compliance Requirements
  • December 28, 2009 | Authors: Stephen F. Herbes; James N. Karas
  • Law Firms: Riker Danzig Scherer Hyland & Perretti LLP - Morristown Office; Riker Danzig Scherer Hyland & Perretti LLP - New York Office
  • As the end of 2009 approaches, employers should review their employee benefit plans to make sure they comply with changes in the law, including the Pension Protection Act of 2006 ("PPA"), the Worker, Retiree, Employer and Recovery Act of 2008 ("WRERA"), the Heroes Earnings Assistance and Relief Tax Act of 2008 ("HEART Act"), the Genetic Information Nondiscrimination Act ("GINA") of 2008, and Michelle's Law.
    PPA Amendments

    For defined contribution plans, the main 2009 year-end amendments required or permitted under the PPA include:

    • accelerated vesting of non-matching employer contributions;
    • addition of an automatic contribution arrangement feature;
    • in-service distributions to employees who have attained age 62;
    • if applicable:
      • expansion of hardship distributions to include hardship events experienced by participant's beneficiary;
      • addition of "qualified reservist distribution" feature;
      • addition of rollovers from plan to Roth IRAs by certain non-high income individuals;
      • tax-free rollovers by a nonspousal beneficiary of a qualifying distribution from a deceased participant's eligible retirement plan into an IRA;
      • mandatory diversification provisions allowing participants to divest employee contributions and elective deferrals from an investment in employer securities into other investment options and allowing participants who have completed at least 3 years of service with the employer to diversify employer contributions from an investment in employer securities to other investment options; lengthening the notice and consent time periods to 180 days (from 90 days) before the participant's annuity start date.

    For single-employer defined benefit plans, the main 2009 year-end amendments required or permitted under the PPA include:

    • funding-based restrictions on certain lump-sum payments, accelerated distributions and plant shutdown benefits, as well as freezes on future benefit accruals and prohibitions on benefit enhancements, if the plan's "adjusted funding target attainment percentage" falls below certain prescribed levels;
    • addition, in certain instances, of a qualified survivor annuity option;
    • lengthening the notice and consent time periods to 180 days (from 90 days) before the participant's annuity start date;
    • changes to certain interest rate assumptions under the plan, including interest rates used to determine the amount of, and limit upon, lump sum distributions or other optional forms of payment.
    • rollovers by nonspousal beneficiaries, if applicable;

    WRERA Amendments

    Although plan amendments for WRERA generally are not required until 2010, employers may wish to amend their plans in 2009 for the plan provisions impacted by the PPA.

    For defined contribution plans, the main amendments required or permitted under WRERA include:

    • optional suspension of required minimum distributions to participants age 70-1/2 for the 2009 calendar year;
    • removal of income limitations and other restrictions on rollovers from designated Roth accounts;
    • distributions of excess deferrals no longer requiring "gap" earnings to be included;
    • technical changes involving eligible automatic contribution arrangements.

    For single-employer defined benefit plans, the main amendments required or permitted under WRERA include:

    • changes to the mortality table; and for small plans, changes to the applicable interest rate used in determining applicable annual limitations for pension benefits;
    • exclusion of small dollar ($5,000 or less) lump sum cash out payments from the PPA's restrictions on lump sum payments.

    HEART Act Amendments

    Like the WRERA amendments, plan amendments for the HEART Act generally are not required until 2010. Employers should be aware of the HEART Act provisions, however, and administer their plans accordingly. Some of the main changes required by the HEART Act include:

    • participants who receive military differential pay are treated as active employees and the differential pay is treated as compensation for purposes of 401(k) plans, 403(b) plans, 457 plans, and defined benefit plans that permit employee contributions;
    • plan benefits must become fully vested if a participant dies while performing qualified military service.

    Michelle's Law and GINA

    In addition to any amendments required by the PPA Act, WRERA, or the HEART Act, employers should also review their health and welfare plans to make sure they comply with GINA and Michelle's Law.

    GINA prohibits group health plans and health insurance issuers in the group or individual markets from increasing the group premium or contribution amounts based on genetic information; requesting or requiring an individual or family member to undergo a genetic test; and requesting, reporting, or purchasing genetic information prior to or in connection with enrollment, or at any time for underwriting purposes.

    Michelle's Law, among other things, allows dependent children who enrolled as full-time students, but lost their student status (and group health plan coverage) due to a serious illness or injury, to retain group health plan coverage.