What’s New in Compliance? By Michael Hart, Rikki Sapolich, Emily Zimmer

The following is a brief checklist of near-term deadlines associated with new or non-recurring employee benefit plan compliance obligations. As these are not part of an employer’s regular employee benefit plan administration, they may require special attention and planning.

Retirement Plans • Defined Benefit Pension Plan Funding-based Restrictions Amendments: Employers that sponsor

tax-qualified defined benefit plans must amend their plans to reflect provisions of the Pension Protection Act of 2006 (“PPA”) that place limits on benefits and benefit accruals in substantially underfunded plans. These amendments are required by December 31, 2011 (for calendar year plans) or the last day of the plan year beginning after January 1, 2011 (for non-calendar year plans).

• Cash Balance Plan Accelerated Vesting Amendments: Employers that sponsor tax-qualified cash balance or other “hybrid” plans must amend their plans to reflect PPA vesting and other requirements by December 31, 2011 (for calendar year plans) or the last day of the plan year beginning after January 1, 2011 (for non-calendar year plans).

• PPA Amendments for Governmental and 457(b) Plans: Governments that sponsor tax-qualified retirement plans and 457(b) plans must adopt PPA amendments by December 31, 2011 (for calendar year plans) or the last day of the plan year beginning on or after January 1, 2011 (for non-calendar year plans).

• WRERA Required Minimum Distribution Suspension Amendments: Employers that sponsor tax-qualified and 403(b) defined contribution plans and that suspended required minimum distributions in 2009 as permitted by the Worker, Retiree, and Employer Recovery Act of 2008 must amend their plans to reflect this suspension of required minimum distributions by December 31, 2011 (for calendar year plans) or the last day of the plan year beginning on or after January 1, 2011 (for non-calendar year plans).

• Roth 401(k) Plan Conversion Amendments: Employers that sponsor Roth 401(k) plans and that added a Roth conversion feature prior to December 31, 2011 must amend their plans to reflect this feature by December 31, 2011. If the plan is a “safe harbor” plan (structured to be exempt from 401(k) nondiscrimination testing) and has a non-calendar year plan year, the deadline may be extended to the last day of the plan year in which the Roth conversion feature became effective.

• Enhanced Retirement Plan Service Provider Fee Disclosure Requirements: Retirement plan service providers must disclose fee-related information to plan fiduciaries by March 31, 2012. Plan fiduciaries should review all new and existing service provider contracts and arrangements to evaluate the “reasonableness” of the service contract or arrangement under provisions of ERISA that regulate the payment of compensation to plan service providers and that become effective April 1, 2012.

October 14, 2011 Practice Group(s): Employee Benefits

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• New Defined Contribution Plan Participant Investment Direction Disclosure Requirements: Administrators of defined contribution plans that permit participants to direct the investment of their accounts must comply with new participant-level disclosure requirements by May 31, 2012 (for calendar year plans) or the later of May 31, 2012 or 60 days after the first day of the first plan year beginning on or after November 1, 2011 (for non-calendar year plans). Plan administrators must provide the first quarterly fee disclosure no later than 45 days after the initial fee participant-level disclosure deadline, which means that a calendar year plan must issue its first quarterly disclosure to participants by August 14, 2012. Most employers serve as the “administrator” of their retirement plans under ERISA and, therefore, need to be aware of these new requirements, even if a third party record keeper will take the lead in satisfying the obligation on behalf of the employer.

• Adoption of Preapproved Defined Benefit Pension Plan Restatements: Employers that have adopted a defined benefit pension plan that has been pre-approved by the Internal Revenue Service (often referred to as prototype plans) must adopt a restatement of the preapproved plan reflecting recent law changes by April 30, 2012. Employers with pre-approved plans that have not received a communication from the institution that sponsors the pre-approved plan should contact the institution to determine whether the employer needs to adopt the restatement. While employers with pre-approved plans generally do not need to obtain Internal Revenue Service approval of their plans, there are some circumstances in which approval by the Internal Revenue Service may be necessary or desired. That approval is obtained by filing an application for a determination letter with the Internal Revenue Service. The deadline for filing an application for a determination letter with respect to the restatement of a pre-approved defined benefit plan is April 30, 2012.

• Military Service Amendments for Governmental and 457(b) Plans: Governments that sponsor tax-qualified or 457(b) plans must amend their plans to reflect the expanded benefit requirements under the Heroes Earnings Assistance and Relief Tax Act of 2008 for employees who enter military service. The deadline for these amendments is by December 31, 2012 (for calendar year plans) or the last day of the plan year beginning on or after January 1, 2012 for non-calendar year plans.

Health and Welfare Plans • Health Care Reform Enhanced Internal Claims and Appeals Requirements and External Review

Procedures for Non-Grandfathered Plans: Employers that sponsor group health plans subject to health care reform’s enhanced internal claims and appeals requirements and external review procedures should confirm that such new requirements are being implemented correctly and timely. Some requirements, such as an expansion of the circumstances that trigger rules for properly handling “adverse benefit determinations,” clarifications on plan participants’ right to full and fair review, avoiding conflicts of interest and mandatory external review procedures, became effective for plan years beginning on or after September 23, 2010. Other requirements, such as additional content requirements for denial notices and providing denial notices in a culturally and linguistically appropriate manner, are subject to a non-enforcement grace period that extends until plan years beginning on and after January 1, 2012. Some group health plans that were in effect prior to health care reform and that have not been materially modified have “grandfathered” status for purposes of certain health care reform requirements. Grandfathered health plans are not subject to these requirements.

• Health Care Reform Amendments: Plan sponsors of group health plans subject to health care reform should amend their plan documents, including any wrap plans and/or Internal Revenue

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Code Section 125 cafeteria plans, by the end of the current plan year (December 31, 2011 for calendar year plans) to reflect health care reform requirements that become effective for plan years beginning on or after September 23, 2010, including any revision to those requirements made by supplemental guidance. Some requirements that may need to be included in such amendments are dependent coverage of adult children up to age 26, elimination of or restrictions on lifetime and annual limits on the dollar value of essential health benefits, prohibition on rescissions of coverage, first dollar coverage of preventive health services and enhanced internal claims and appeals requirements and external review procedures.

• Four-page Summary of Benefits and Coverage: Health care reform requires group health plans, including grandfathered plans, to provide a summary of benefits and coverage for each benefit package beginning March 23, 2012. The federal regulatory agencies have issued guidance that addresses the content requirements, the appearance and language for the summary, the timing for providing the summary and other requirements related to the provision of the summary, and a template and uniform glossary have been included in that guidance.

• W-2 Reporting of Cost of Employer-sponsored Health Coverage: Beginning with the 2012 tax year, employers must report the aggregate cost of applicable employer-sponsored coverage on an employee’s form W-2 in Box 12 using Code DD. Reporting for the 2011 tax year is optional. This will impact W-2s that employers will provide to employees at the beginning of 2013 for the 2012 tax year.

Authors:

Michael Hart michael.hart@klgates.com +1.412.355.6211

Rikki Sapolich rikki.sapolich@klgates.com +1.415.882.8027

Emily Zimmer emily.zimmer@klgates.com +1.704.331.7405