Year-End Employee Benefits Round-Up

November 25, 2014

As 2014 comes to a close, plan sponsors may wish to review their employee benefit plans and programs and consider new rules that take effect in 2015.  Important concerns arise out of the Patient Protection and Affordable Care Act and its companion law, the Health Care and Education Reconciliation Act (jointly, “the Affordable Care Acts”).This summary highlights a number of important benefits issues and the related deadlines.

Health Care Plans

Employer Mandate for Larger Employers Goes Into Effect

On January 1, 2015, the “employer shared responsibility rules” under the Affordable Care Acts, and applicable penalties, go into effect for employers with 100 or more full-time equivalent employees.  For employers with fewer than 100 full-time equivalent employees, the rules go into effect on January 1, 2016.

Employers should be monitoring their employee headcount to determine whether they are subject to the mandate starting in 2015 or 2016.  If the rules apply in 2015, employers must ensure that they are offering essential health benefits coverage that provides at least “minimum value,” and that the cost of such health coverage does not exceed the statutory limit (generally, 9.5% of W-2 income).

Fees Due in January for Reinsurance Program

The Affordable Care Acts require insurance issuers and self-funded group health plans to pay fees for 2014, 2015, and 2016 to fund the “Transitional Reinsurance Program.”  Typically, insurers will remit the fees for fully insured plans. Self-funded plans, however, are responsible for paying these fees themselves.

The fee for 2014 is $5.25 per participant per month (or $63 per participant per year).  The fee can be paid in one installment or two. If paying in one installment, the 2014 fee is due January 15, 2015. If paying in two installments, the first installment of $52.50 per participant is due January 15, 2015, and the second installment of $10.50 per participant is due November 15, 2015.

Click here for additional details on how to pay the fee.

Tax-Qualified Retirement Plans

Same-Sex Spouse Coverage Required

Because of the U.S. Supreme Court’s 2013 decision in United States v. Windsor, the IRS has announced that the term “spouse” has a new meaning for federal tax purposes.  The terms “spouse,” “husband and wife,” “husband,” and “wife” now include an individual married to a person of the same sex if the couple is legally married under the laws of any state, and the term “marriage” includes such a marriage.

Because most employee benefit plans are subject to federal tax law, the new meaning of the term “spouse” affects most plans.  Therefore, plan sponsors and administrators should review their plan documents (defined benefit, defined contribution, and health and welfare) to see how “spouse” is defined.  If a plan’s definition needs to be amended, the amendment generally should be adopted by December 31, 2014.

Click here for additional details.

PBGC Uniform Due Dates: Transition Rule Ends for Small Plans

Last year, the Pension Benefit Guaranty Corporation (PBGC) issued new rules that eliminated the staggered payment dates for PBGC premium payments.  Under the old rules, premium payment due dates varied depending on plan size – small (less than 100 participants), medium-size (100-499 participants), or large (500 or more participants) – and on premium type (flat or variable).

Beginning with the 2014 premium payment year, large and medium-size plans were required to pay flat-rate and variable-rate premiums no later than 9½ months after the beginning of the premium payment year (that is, by October 15, 2014).  However, a transition rule applied for small plans in 2014.

Starting in 2015, small plans must also pay their PBGC premiums no later than 9½ months after the beginning of the premium payment year.  Thus, for small plans as well as large and medium-size plans, all premium payments for the 2015 premium year will be due by October 15, 2015.

December 1 Notice Deadline for Calendar-Year 401(k) Plans

Administrators of calendar-year 401(k) plans may need to issue certain year-end notices to plan participants by December 1, 2014:

QDIA Notice.  An employer that uses a qualified default investment alternative (“QDIA”) as the investment fund for participants who fail to make timely investment elections must provide an annual notice describing the QDIA and the rights of participants at least 30 days before the beginning of each plan year.

Automatic Enrollment Notice.  An employer with automatic enrollment features in its 401(k) plan must provide an annual notice explaining automatic enrollment and the right to opt out at least 30 days before the beginning of each plan year.

Safe Harbor Notice.  An employers that has a 401(k) plan with safe harbor contributions designed to automatically satisfy applicable nondiscrimination requirements must provide an annual notice explaining the safe harbor design at least 30 days before the beginning of each plan year.

Defined Contribution Plans Must Allocate Forfeitures by Year-End

In general, qualified defined contribution plans may not carry unallocated suspense accounts from one plan year to the next. The IRS makes specific exceptions to this rule for suspense accounts arising from (a) the correction of excess annual additions and    (b) assets transferred from a terminated defined benefit plan to be allocated over a seven-year period.  Otherwise, the IRS expects all plan assets to be allocated among participant accounts at year-end.

Generally, whether a defined contribution plan reallocates forfeitures, applies them as a credit toward employer contributions, or applies them as a credit toward plan expenses, there should be no unallocated forfeitures remaining at year-end. Plan documents may contain language specifically addressing when forfeitures must be applied.

Cycle D Plans

Plan sponsors whose employer identification numbers end in -4 or -9 (and sponsors of multiemployer plans) are in “Cycle D” of the IRS’s determination letter program.  Existing determination letters for Cycle D tax-qualified retirement plans will expire on January 31, 2015 – so, by that date, Cycle D sponsors must apply for new determination letters.  Each determination letter application must be accompanied by an amended and restated plan that complies with all recent changes in applicable law and regulations.

Reminder: Summary Plan Descriptions

An updated summary plan description (SPD) must be furnished every five years if changes have been made to information in the SPD, or if the related plan has been updated during that time period.  (Otherwise, a new SPD must be furnished every 10 years.)  In the interval between updated SPDs, plan participants must receive a summary of any “material modifications” to their plan no later than 210 days after the end of the plan year in which the modifications were adopted.

Cafeteria Plans

NEW:  Mid-Year Election Changes Relating to Health Care Coverage

In September, the IRS announced that a cafeteria plan may now permit new mid-year election changes relating to health coverage.  This makes it possible for a cafeteria plan participant to revoke his/her election of coverage under the employer’s group health plan, and to purchase health coverage through a competitive exchange established under the Affordable Care Acts, in two situations:

  • when the participant’s hours are reduced to less than 30 hours per week, yet the reduction does not affect eligibility under the employer’s plan, or
  • when the participant wishes to cease coverage under the employer’s plan and to purchase health coverage through an exchange without duplicative coverage or a gap in coverage.

A cafeteria plan will have to be amended if it is going to allow these new mid-year election changes.  Generally, the plan amendment must be adopted on or before the last day of the plan year in which the new election changes are permitted.  However, an amendment allowing these election changes during the 2014 plan year may be adopted up until the last day of the 2015 plan year.

Upcoming Amendment Deadline

Under the Affordable Care Acts, a cafeteria plan must limit the amount that a participant may contribute to a health flexible spending arrangement to $2,500 per year (or less).  While plan administrators have been complying with the $2,500 limit in operation since 2013, it is now time for cafeteria plans to be amended to incorporate the limit.  All cafeteria plans must be amended to reflect the $2,500 limit no later than the end of calendar year 2014.

Click here for additional details.

Immigration News

H-1B Visa Lottery Nearly Certain for April 1, 2015

Each year, U.S. employers scramble to obtain H-1B visas for the foreign national professionals they employ.  In both of the past two years, the demand for new H-1B visas has exceeded availability on the first day of filing, April 1.  Only 85,000 H-1B visas become available each year, and in 2014 the number of new H-1B petitions filed exceeded 170,000.

As the 2015 filing season approaches, employers should assume, once again, that there will be more demand for H-1B visas than there are numbers available.

The earliest filing date for the next allotment of H-1B visas is April 1, 2015.  If – as is almost certain – more H-1B petitions are filed than there are numbers available, the U.S. Citizenship and Immigration Services will subject all petitions submitted on the first day to a random selection to determine which will be processed.  The H-1B petitions not selected in this lottery will be returned to the employers who filed them, and the affected workers will be unable to seek H-1B status for another year.

Given the importance of getting new H-1B petitions filed on the first day of the 2015 filing season, we advise employers to work with counsel to have the petitions prepared well before the end of March, 2015.  If an H-1B visa lottery is necessary, there is no guarantee that any particular petition will be selected.  But unless the petition is filed on April 1, 2015, it may stand no chance of acceptance.