YEAR END BENEFITS ALERT

Action by year-end is required for each of the following types of benefit plans:

·         All cafeteria plan documents (including premium only plans and flexible spending account plans) must be amended or restated to comply with regulations that provide new rules for participation, employee elections and contributions (see www.ustreas.gov/press/releases/hp526.htm for details).

·         Final regulations require all subject deferred compensation arrangements (severance plans, employment contracts, incentive compensation plans and other arrangements that defer receipt of compensation that the employer is legally obligated to pay into a subsequent tax year) to be amended or restated to comply with the provisions of Code Section 409A (see New Deferred Compensation Rules at www.benefitslawgroupofchicago.com/HTML/new-deferred-compensation-rules-2005.htm for details).

·         All tax deferred annuity plans covering employees of tax-exempt organizations (Section 403(b) plans) must be amended or restated to comply with regulations that generally require 403(b) plans to operate more like 401(k) plans (see Benefits Bulletin "Proposed 403(b) Regulations" at www.benefitslawgroupofchicago.com  for details).  All existing 403(b) arrangements (including those which are ERISA-exempt) must be documented with a written plan that satisfies all applicable requirements.  In addition to plan revisions, other matters involving plan service providers also require attention (see Section 403(b) Final Regulations:  A Compliance Outline at www.benefitslawgroupofchicago.com/PDF/2008/403b-compliance-outline.pdf ).

·         Regulations proposed by the Department of Labor that are expected to be finalized before the end of this year will require specific participant fee and performance disclosures for all participant-directed individual account plans (that is, retirement plans which allow participants to direct the investment of their own accounts).  Any failure to comply with the regulations, when finalized, will be a breach of duty by plan fiduciaries.  The required participant disclosures apply generally to all fees and expenses incurred by the plan (not the plan sponsor) and are illustrated by the Department of Labor model disclosure chart with sample information (www.dol.gov/ebsa/modelcomparativechart.doc).

·         In addition to participant fee disclosures, plan administrators also must make fee and cost disclosures to the government on a new Schedule C to the Form 5500 annual report.  Plan service providers (including third party administrators and recordkeepers) are required to make corresponding fee disclosures as a condition for their being able to provide services to retirement plan.  These disclosures will tie into the new Schedule C to Form 5500.  Existing service provider contracts will need to be amended before the end of the current plan year to require such fee disclosures and to satisfy other conditions specified in the proposed regulations (see item 3 of Section 403(b) Final Regulations:  A Compliance Outline at www.benefitslawgroupofchicago.com/PDF/2008/403b-compliance-outline.pdf for some of the requirements for service provider contracts).

Required Action:  Plan administrators and HR staff should be working right now with plan service providers and professional advisors to make the required changes in plan documents and service provider contracts.  Formal document compliance by year-end must be the goal because retroactive plan changes may be prohibited.

Andrew S. Williams
Aronberg Goldgehn Davis & Garmisa
One IBM Plaza, Suite 3000
Chicago, Illinois 60611
312/755-3145
awilliams@agdglaw.com