It’s time to ensure year-end qualified plan deadlines are satisfied. Below is a checklist designed to help employers with this process.
A. Qualified Plan Amendments
The deadline for adopting the amendments listed below is the last day of the plan year beginning on or after January 1, 2012. For calendar year plans, the deadline is December 31, 2012. Note that some of the provisions became effective and required operational compliance prior to 2012. Plan sponsors should review their plans’ administration to ensure that the plans have been operated in compliance with the applicable provision.
- Defined Benefit Plans
- Code § 436 Funding Based Benefit Restrictions. The Pension Protection Act of 2006 ("PPA") added Section 436, which imposes restrictions on distributions and benefit accruals based on the funding status of a defined benefit plan, to the Internal Revenue Code ("Code"). Plans that do not meet certain funding targets must limit benefit accruals, cannot be amended to increase benefit liabilities, and must limit certain forms of benefit payments. These provisions are effective for plan years beginning after December 31, 2007. In Notice 2011-96, the IRS extended the due date for adopting the amendment to the last day of the plan year beginning on or after January 1, 2012 and provided sample language for the amendment.
- Cash Balance and Hybrid Plans. PPA made several changes affecting cash balance and hybrid pension plans, including requiring three-year vesting and prohibiting interest credits at an interest crediting rate that exceeds a market rates of return. Recently the IRS issued guidance (Notice 2012-61) that extends the deadline for adopting amendments implementing the interest crediting and market rate of return requirements, the vesting requirements, but not the lump sum "whipsaw" in Code § 401(a)(13)(A). The extended deadline is the last day of the plan year before the plan year when regulations implementing the interest rate requirements become effective, which is not expected to be earlier than January 1, 2014. Amendments would not be required until 2013 at the earliest.
- Governmental Plans
Governmental plans (as defined in Code § 414(d)) must adopt several provisions added by the Heroes Earnings Assistance and Relief Tax Act of 2008 (“HEART”) and the Worker, Retiree and Employer Recovery Act of 2008 (“WRERA”) by the last day of the plan year beginning on or after January 1, 2012 (December 31 for calendar year plans).
HEART Act Changes
- Death Benefits: Effective for deaths occurring on or after January 1, 2007, plans must provide beneficiaries of a participant who dies while performing qualified military service with the same death benefits that would have been available to the beneficiaries (other than benefit accruals during qualified military service) as if the participant had been employed on his or her date of death.
- Military Differential Pay: The plan must include military differential pay made by the plan sponsor after December 31, 2008 as compensation for purposes of applying statutory limits and other qualification requirements, such as the limits on annual contributions or benefit accruals under Code § 415 or the nondiscrimination requirements under Code §§ 401(a)(4), 401(k), and 401(m).
- Waiver of Required Minimum Distributions. WRERA modified the minimum distribution requirement by waiving any required minimum distributions for 2009. The amendment implementing the waiver is required by the last day of the 2012 plan year (December 31 for calendar year plans).
- Direct Rollover by Non-Spouse Beneficiary. For plan years beginning after December 31, 2010, all plans, including governmental plans, must permit non-spouse beneficiaries to directly roll over an eligible rollover distribution. The rollover by the non-spouse beneficiary may be made only to an IRA that is treated as an inherited IRA under Code § 402(c)(11). The amendment is required by the last day of the 2012 plan year (December 31 for calendar year plans).
B. Required Annual Notices
Plan sponsors should ensure that the required annual notices, if applicable, should be sent to participants and beneficiaries on a timely basis.
- Section 401(k) Safe Harbor Notice. All participants in a safe harbor 401(k) plan must receive an annual notice that describes the safe harbor contribution and certain other plan features. The notice must be given by December 1 for calendar year plans and for non-calendar year plans not fewer than 30, and not more than 90, days before the first day of the plan year.
- Section 401(k) Automatic Enrollment Notice. If the plan provides that employees will be automatically enrolled, the plan administrator must give eligible employees an annual notice that describes the circumstances in which eligible employees are automatically enrolled and pay will be automatically contributed to the plan. The notice must be given by December 1 for calendar year plans and for non-calendar year plans not fewer than 30 days before the first day of the plan year.
- Qualified Default Investment Notice. A defined contribution plan that permits participants to direct the investment of their account balances may provide that if the participant does not give an affirmative investment direction, the portion of the account balance for which affirmative investment direction was not given will be invested in a qualified default investment. Plan sponsors must give the annual notice by December 1 for calendar year plans and for non-calendar year plans at least 30 days prior to the beginning of the plan year.
Note: A safe harbor 401(k) plan can incorporate two or more of the notices described above, as applicable, in a single notice.
- Defined Benefit Plan Funding Notice. An annual notice describing the plan’s funded status for the past two years, a statement of the plan’s assets and liabilities and certain other information relating to the plan’s funded status must be furnished to participants within 120 days after the end of the plan year. For calendar year plans, the deadline is April 30. The deadline for small plans that cover fewer than 100 participants is the due date for the plan’s Form 5500.