With the end of the year approaching, employers should evaluate their retirement plans to determine whether any year-end amendments or disclosures are required. This article provides a brief overview of such amendments and disclosures as well as other compliance considerations.

Retirement Plans

  • Funding Limits. Single-employer defined benefit pension plans are generally subject to the Internal Revenue Code (Code) Section 436 funding-based limits on accelerated payments and benefit accruals. As provided in Notice 2011-96, the deadline for amending a plan to comply with these requirements is the last day of the first plan year beginning in 2012 (that is, December 31, 2012, for calendar-year plans). Employers should review their benefit plans to ensure they have been properly amended and consider the Internal Revenue Service (IRS) guidance and sample amendment issued in Notice 2011-96.
  • Discretionary Amendments. Discretionary plan amendments must generally be adopted by the end of the first plan year in which they become effective. Therefore, if an employer with a calendar-year plan intends to adopt an amendment that will be effective as of January 1, 2012, it should be adopted by December 31, 2012. It is important to note that certain changes (for example, reduction of future benefit accruals and changes to 401(k) safe harbor plans) must generally be adopted in advance pursuant to specific requirements.
  • Determination Letters. If an employer maintains an individually-designed plan, the employer must apply for a determination letter by the end of its five-year cycle in order to qualify for an extended remedial amendment period. During such period, the plan document can be amended retroactively to correct qualification errors in the plan's provisions. The current five-year cycle for Cycle B plans (that is, plans sponsored by employers with tax identification numbers ending in 2 or 7 and multiple-employer plans) ends on January 31, 2013. IRS Notice 2011-97 sets forth a cumulative list of provisions that the IRS will review in connection with Cycle B submissions.
  • Qualified Default Investment Alternative (QDIA) Notices. Employers that use a QDIA for participants who do not make affirmative investment elections must provide an annual notice to participants with investments in the QDIA at least 30 days before the end of each plan year. The notice must include a description of the circumstances under which funds will be invested in the QDIA, a description of the QDIA, and an explanation of participants' rights to direct their investments.
  • Automatic Enrollment Notices. Employers with 401(k) plans that utilize automatic enrollment and automatic increase features must provide an annual notice to covered employees at least 30 days before the end of each plan year. The notice must inform participants how automatic deferrals will be invested in the absence of an affirmative investment direction and how to opt out of or change the level of contributions.
  • Safe Harbor Notices. Employers with 401(k) plans that utilize a nonelective or matching contribution safe harbor alternative to nondiscrimination testing must provide an annual notice to all eligible employees at least 30 days before the end of each plan year. Among other things, the notice must describe the safe harbor contribution, any other contributions, withdrawal, and vesting provisions applicable to contributions, as well as how to make deferral elections.
  • Quarterly Fee Disclosures. Employers with participant-directed 401(k) or other defined contribution plans must provide the first quarterly disclosure of plan fees to participants by November 14, 2012. The disclosure will need to describe the actual expenses paid from a participant's account during the preceding calendar quarter.
  • Summary Annual Reports. Employers with defined contribution plans are required to provide a summary annual report to all participants no later than two months after the Form 5500 due date (i.e., by December 15 for plans that filed their Form 5500 with an extension through October 15).
  • PBGC Premiums. Employers who maintain plans subject to Pension Benefit Guaranty Corporation insurance requirements should also note that the per-participant flat premium rate for plan years beginning in 2013 will be $42 for single-employer plans and $12 for multi-employer plans. For plan years beginning in 2013, the variable-rate premium for single-employer plans is $9 per $1,000 of unfunded vested benefits and is capped at $400 times the number of participants. Plans sponsored by small employers (generally fewer than 25 employees) may be subject to a lower cap.

Nonqualified Plans

Employers that maintain severance, deferred compensation, and other arrangements that condition payment on the execution of a release or other employment-related document by the payee should review such arrangements for compliance with Code Section 409A, which sets forth very specific requirements for nonqualified deferred compensation plans. In Notice 2010-80, the IRS updated its Code Section 409A correction program to allow employers (and other service recipients) additional transition relief to bring noncompliant agreements with such conditions into compliance. The deadline for correcting the terms of such noncompliant arrangements under this relief is generally December 31, 2012.