The federal government continues to enact new rules affecting employee benefits. The following new laws and regulations require changes to most employers’ plans:
American Jobs Creation Act of 2004
Sweeping new rules for nonqualified deferred compensation plans were added to the Internal Revenue Code. (Tax qualified retirement plans, like most profit sharing, 401(k) and 403(b) plans, are not affected.) The new rules affect all forms of nonqualified deferred compensation, whether contained in a formal plan for multiple employees or in an employment contract with one employee. Most nonqualified deferred compensation plans will need to change their procedures (1) to require that elections to defer compensation must be made before the year in which the compensation is earned and (2) for electing how and when to receive future payment of the deferred compensation. The new rules are generally effective for compensation deferred after 2004. Virtually all plans will have to be amended to reflect the new rules. Fortunately, the IRS has indicated that amendments do not have to be adopted by this December 31st. Formal guidance is expected soon on when amendments must be adopted, and on transition relief for elections to defer compensation earned in 2005.
Involuntary Cash-Outs from Qualified Retirement Plans
The 2001 tax act (“EGTRRA”) requires most cash-outs of less than $5,000 from retirement plans to be automatically transferred to an IRA, unless a participant elects otherwise. The effective date of this requirement was deferred until the Department of Labor issued regulations implementing the IRA transfer rules. Regulations have now been issued which effect cash-outs on and after March 28, 2005. Employers will need to amend their qualified retirement plans to provide for automatic IRA transfers of cash-outs, and will also need to find an IRA sponsor to accept the automatic transfers.
Working Families Tax Relief Act of 2004
This Act narrows the Internal Revenue Code definition of "dependent" for certain purposes. Health insurance plans are exempt from this Act, but, some plans incorporate the Code’s definition of dependent by reference. If so, that would unintentionally exclude certain currently covered children from insurance coverage in 2005, unless the plan is amended. Dependent care flexible spending accounts are not exempt from this Act. Starting in 2005, day care expenses for certain elderly relatives will no longer be eligible for reimbursement. Plan amendments will be needed to revise the definition of dependents for whom reimbursement can be made.<br>
Final COBRA Regulations
The Department of Labor issued final rules governing COBRA’s notice requirements. Employers will need to change their COBRA procedures, revise and expand their COBRA notices, and update their summary plan descriptions. The new rules are generally effective for the first plan year after November 26, 2004 (i.e., January 1st for calendar year plans).
If you have any questions about these new laws and regulations, the members of the Gordon Feinblatt Employee Benefits Group are ready to help you.