As 2007 draws to a close and we look ahead to 2008, we send you this sampler of recent developments and reminders for qualified plan sponsors and administrators.
- Automatic Enrollment Notice: While automatic enrollment arrangements have been available for several years, new options to encourage automatic enrollment will become effective in 2008. The Eligible Automatic Contribution Arrangement (EACA) rules provide an employee who fails to opt out of automatic enrollment with a limited period after automatic contributions begin to request the return of the contributions. In addition, a Qualified Automatic Contribution Arrangement (QACA) can automatically satisfy the 401(k) and 401(m) nondiscrimination tests and the topheavy requirements on a safe-harbor basis. The EACA and the QACA rules both require notice to participants within a reasonable time before the beginning of the plan year. The IRS recently issued a sample notice that can be used to meet both the EACA and QACA requirements ( http://www.irs.gov/pub/irs-tege/sample_notice.pdf); the notice can also be adapted for use with other automatic enrollment arrangements.
- QDIA Notice: Recently-issued DOL regulations provide fiduciary protection if plan contributions made for a participant who fails to provide investment directions are invested in qualified default investment alternatives (QDIAs). QDIA protection is dependent upon providing notice to the participant, generally 30 days before the first QDIA investments are made and annually thereafter. The sample EACA/QACA notice issued by the IRS can also be used to satisfy this QDIA notice requirement.
- Distributions: The Pension Protection Act of 2006 made various changes affecting qualified plan distributions and related notices. For 2007, the 30-90 day notice and consent period for distributions has been extended to 30-180 days and, in explaining a participant’s right to defer the receipt of a distribution, a distribution notice must also describe the consequences of failing to defer the distribution. In addition, rules allowing hardship distributions and IRA rollovers have been expanded to cover nonspouse beneficiaries, and in-service distributions can be made to military reservists serving on active duty. As of 2008, rollovers can be made from a qualified plan directly to a Roth IRA, and plans required to provide a qualified joint and survivor annuity must also provide a new distribution option, a “qualified optional survivor annuity.” In addition, new interest rate and mortality assumptions apply in determining minimum lump sums under defined benefit plans. These changes will affect relative value disclosures as well as distribution forms.
- Fidelity Bond Maximum Increased: ERISA requires a plan fiduciary to be covered by a bond based on the value of plan assets. Currently, the maximum required bond amount is $500,000.
As of 2008, the maximum increases to $1 million for ESOPs and other plans that hold employer securities.
- Optional Plan Design Changes in 2007: Plan amendments or restatements reflecting optional plan design changes (“discretionary amendments”) must be made by the end of the plan year in which the change is effective. Therefore, for calendar year plans, plan sponsors and administrators should make sure that any discretionary amendments for 2007 are adopted and signed no later than December 31, 2007.