With 2024 drawing to a close, employers should review any actions needed before year-end with respect to their benefit plans, as well as some upcoming deadlines that may require advance planning. As the adage attributed to Benjamin Franklin says, if you fail to plan, you plan to fail, but by being (very) mindful of these various deadlines, employers and plan sponsors can plan to succeed.
Qualified Retirement Plans
Long-Term Part-Time Employees
- The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) prohibited defined contribution plan sponsors from excluding employees who complete at least 500 hours of service over three consecutive years (known as long-term part-time or LTPT employees) from making elective deferrals based on their hours of service. The SECURE 2.0 Act of 2022 (SECURE 2.0) reduced this service requirement to two consecutive years, beginning in 2025. Employers are not required to provide employer contributions to LTPT employees who become eligible under these rules.
- The Internal Revenue Service (IRS) released proposed regulations last year regarding LTPT employees, which highlighted the administrative complexities of these rules. Depending on eligibility requirements and plan design, employers may be required to carefully track hours of service for their part-time employees in order to comply with the proposed regulations.
- Plans that allow employees to begin making deferrals immediately after their hire date or after a short service period (e.g., 90 days) are generally not impacted by the LTPT employee rules. However, plans that require employees to complete more than 500 hours of service in a 12-month period in order to become eligible may consider moving to a more generous eligibility requirement or an elapsed time standard to avoid the complexities of the LTPT employee rules.
- ACTION ITEMS:
- Consider plan amendments that expand eligibility, if the sponsor prefers to avoid tracking LTPT employee hours and eligibility.
- Review processes for tracking LTPT employee hours to ensure compliance with the statute and proposed regulations.
- Monitor any changes in eligibility and decide if updates to plan operations or communications are needed.
Catch-Up Provisions
- Participants who are age 50 or older at any time during the calendar year are eligible to make catch-up contributions equal to $7,500 in 2025.
- Under SECURE 2.0, beginning in 2025, participants who are ages 60 to 63 can make increased “super” catch-up contributions of up to 150% of the regular catch-up limit, or $11,250 for 2025.
- ACTION ITEMS:
- Decide whether to allow participants ages 60 to 63 to make super catch-up contributions, and confirm payroll systems can accommodate this approach.
- Review plan documents to determine whether any amendments are needed before 2025. For example, if a plan document broadly allows the maximum catch-up contributions permitted by law, the plan document may inadvertently allow super catch-up contributions, even if this is not the plan sponsor’s intent.
Forfeitures
- In the last year, there have been numerous lawsuits filed alleging improper use of forfeitures by defined contribution plans. The plans involved in litigation generally contain language that give plan fiduciaries the discretion to choose between using forfeitures to pay plan expenses or reduce employer contributions. The claims allege that plan fiduciaries are improperly choosing to benefit the employer by reducing employer contributions rather than reducing administrative expenses charged to participants.
- ACTION ITEMS:
- Review plan forfeiture provisions and consider removing provisions that give plan fiduciaries discretion to use forfeitures to either pay plan expenses or reduce employer contributions.
Expanding Automatic Enrollment in Retirement Plans
- Under SECURE 2.0, for plan years beginning after December 31, 2024, 401(k) and 403(b) plans established after December 29, 2022 must provide for an eligible automatic contribution arrangement (EACA)..
- ACTION ITEMS:
- Identify applicable plans, including recently established plans of acquired companies.
- Amend applicable plans to include the EACA feature.
- Send all new hires and other affected employees the required plan details, including contribution rates, opt-out procedures, and investment options.
Roth Catch-Up Contributions
- SECURE 2.0 requires that employees earning over $145,000 (as indexed) in the previous calendar year must make catch-up contributions on a Roth basis rather than a pre-tax basis.
- Although this requirement became effective January 1, 2024, the IRS issued Notice 2023-62, which provided an administrative transition period until 2026 during which plan sponsors could delay implementing Roth catch-up contributions.
- ACTION ITEMS:
- Prepare for the complexities of tracking impacted employees and ensuring their contributions are Roth-based.
- Coordinate with recordkeepers and payroll providers to ensure systems are prepared to comply with this requirement in 2026.
Required Minimum Distributions
- Annual required minimum distributions (RMDs) are due by December 31, 2024.
- Final RMD regulations issued earlier this year clarified several technical points related to changes made by the SECURE Act and SECURE 2.0. Notably, the final regulations confirmed that when a participant dies following the commencement of RMDs, annual distributions must continue in each year following the participant’s death, even for those beneficiaries who are required to receive the full account balance within 10 years of the participant’s death.
- ACTION ITEMS:
- Confirm with providers that all required RMDs for 2024 have been or will be remitted.
- Ensure that recordkeepers are prepared to process RMDs for 2025 and beyond in compliance with the final regulations.
Annual Notices
- Annual safe harbor notices, automatic enrollment notices, and qualified default investment alternative notices must be distributed to participants by December 2, 2024.
- ACTION ITEMS:
- Confirm with third-party providers that required annual notices have been distributed.
Qualified Plan Amendments
- ACTION ITEMS:
- Except as otherwise permitted by the SECURE Act and SECURE 2.0, sponsors of tax-qualified plans that made discretionary plan changes during 2024 must adopt plan amendments by December 31, 2024.
Health and Welfare Plans
Gag Clause Prohibition Compliance
- The Consolidated Appropriations Act, 2021 (CAA) amended the Internal Revenue Code and ERISA to prohibit group health plans and health insurance issuers from entering into agreements that prevent disclosure of cost or quality of care data and other data.
- The CAA requires an annual attestation of compliance with these rules by December 31 of each year. Plan sponsors of self-insured plans are responsible for completing this attestation.
- ACTION ITEMS:
- Complete the annual attestation or ensure that the plan’s service provider is doing so on the sponsor’s behalf by December 31, 2024.
End of Telehealth Extension
- Unless Congress acts before year-end, relief that has allowed high deductible health plans (HDHPs) to cover telehealth services at no or reduced cost before participants reach their deductible without jeopardizing health savings account (HSA) eligibility will expire on December 31, 2024.
- If Congress does not act before year-end, participants will be ineligible to contribute to an HSA if an HDHP covers telehealth services at no or reduced cost before participants reach their deductible.
- Non-calendar year HDHP plans may still cover pre-deductible telehealth services through the end of any plan year which begins before January 1, 2025.
- ACTION ITEMS:
- Plan sponsors should be prepared to modify coverage, amend their plans and/or issue summaries of material modification if Congress does not act to extend this relief before year-end.
Mental Health Parity and Addiction Equity Act Requirements
- The Mental Health Parity and Addiction Equity Act requires group health plans to perform and document a comparative analysis of nonquantitative treatment limitations (NQTLs) on mental health or substance use disorder benefits.
- The Department of Labor, Department of Health and Human Services (HHS) and Department of Treasury recently released final regulations on NQTLs and the comparative analysis that are generally applicable for plan years beginning on or after January 1, 2025, though some of the regulations’ more burdensome requirements will not take effect until 2026.
- ACTION ITEMS:
- Confirm that the plan’s third-party administrator or insurer has prepared the comparative analysis, and request and review the analysis. Consider engaging an independent third party to perform a comparative analysis more tailored to the individual plan.
- Ensure the comparative analysis includes a written certification confirming the plan fiduciary has (i) engaged in a prudent process to select the service providers that prepared the analysis, and (ii) reviewed the analysis and discussed it with any applicable service providers.
- If necessary, update vendor contracts to require service providers to assist with compliance.
- Prepare for new requirements that will take effect in 2026.
HIPAA Privacy Reproductive Health Protections
- Earlier this year, HHS amended the Health Insurance Portability and Accountability Act (HIPAA) privacy rules to strengthen protections for reproductive health care.
- These protections include a new prohibition against the use or disclosure of protected health information (PHI) for certain investigations or impositions of liabilities, and an attestation required that requires covered entities and business associates to receive a valid attestation from the person who is requesting the use or disclosure of PHI relating to reproductive health care for certain activities.
- In addition, updates will need to be made to the Notice of Privacy Practices (NPPs).
- Covered entities (including group health plans) must comply with these requirements by December 23, 2024, except for the NPP updates which are due by February 16, 2026.
- ACTION ITEMS:
- By December 23, 2024, group health plans should:
- Review business associate agreements for any necessary revisions;
- Review HIPAA policies and procedures; and
- Confirm that they have an attestation process in place.
- Begin preparing for plan amendments and SPD updates during 2025 to meet the NPP update requirements by February 16, 2026.
Health and Welfare Plans Cybersecurity
- In September, the DOL updated its previously-issued employee benefit plan cybersecurity guidance to confirm that the guidance applies to all health and welfare plans.
- ACTION ITEMS:
- Review cybersecurity contract terms with service providers.
- Consider establishing a formal procedure to periodically review service provider cybersecurity standards, practices and policies.
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