Benefit News of Note For Human Resources and Finance Departments
It’s April. For those of you in a planning mode, here’s what you may want to think about...
Your Pension Plan and Retiree Medical Costs May Be Rising. The culprit behind the cost increase, better than expected mortality improvement after the age of 55. The Society of Actuaries exposure draft of a new mortality improvement scale, if adopted, is expected to result in increases in traditional pension plan liabilities of 2% to 4% and in retiree health care liabilities of 6% to 9%. The new mortality scale may be applied by the IRS as soon as 2014, and it is possible that auditors will push for its implementation even earlier.
401(k) Safe Harbor Plans IRS Compliance Check. Employers with 401(k) plans that utilize safe harbor designs to pass nondiscrimination testing may soon be receiving a compliance check in the mail from the IRS. The IRS will look to see whether the safe harbor requirements are being met, in addition to plan form qualification. Accordingly, if you have never had your safe harbor notice reviewed by counsel, now is a great time to make sure it is compliant. Also, note that if you receive an IRS compliance check you should not just ignore it. The IRS will refer for audit plans that do not respond to compliance checks. Remember that plan errors can be corrected through the IRS voluntary correction program even after receipt of a compliance check, but the less expensive voluntary correction programs are not available once the IRS commences a plan audit.
Identifying Executive Employment Contracts and Severance Arrangements with Release Language. It is not unusual for employment agreements and severance arrangements to contain claims release language that the IRS believes violates Section 409A. The IRS guidance on releases was issued after 2008, meaning this issue may not have been addressed through the Section 409A review process that companies completed in 2008. The IRS has given employers an opportunity to correct deficiencies in release language without any penalties or reporting requirements, but to be entitled to relief, agreements must be amended no later than December 31, 2012.
Utilizing a Private Health Insurance Exchange. Some of the nation’s largest consulting firms (Aon Hewitt and Mercer), as well as other companies in the insurance business, are rolling out private health insurance exchanges for employers. With a private health insurance exchange, a company provides its employees with a lump sum and then lets the employees choose from an array of insurance products that can be offered by more than one insurance company. This type of arrangement may appeal to companies that wish to provide their employees with more flexibility to choose the type of coverage they wish while fixing the company’s share of the health insurance costs in a more predictable manner. The exchanges are expected to result in cost savings and to better contain health insurance cost increases.