Employee Benefits Legal Blog : Employee Benefits Lawyer & Attorney : Fox Rothschild Law Firm : Health Care, Retirement, ERISA : Philadelphia, New York, Northeast

Frequently I am asked if it is good enough to just publish the new SPDs through the company intranet, making them available on-line.  I usually say no because it does not cover former employees on COBRA or dependents.  Now apparently I have a Court case that makes me right.

In Gertjejansen v. Kemper Insurance Companies, the 9th circuit recently held that posting the SPD to the company intranet site alone is insufficient.  As a rule, ERISA requires SPDs to be distributed to plan participants in a manner reasonably calculated to ensure actual receipt by participants.  Mailing them or delivering them electronically can satisfy this requirement.  if you rely on electronic distribution, you would have to make sure that all employees have regular access to a computer at work and that non-employee participants are provided a copy through other means. 

In this case, the Court found that a mere posting is not sufficient delivery because it was not an actual distribution.  Making an SPD available on the company intranet did not constitute a "distribution."  Plus, because all employees did not have regular access to a computer at work, the company could not verify that it was distributed to all participants. 

DOL Reg 2520.104b-1(c) gives a safe harbor for electronic distribution, but it definitively requires a transmission of the SPD, not merely a posting.  So in the future, make sure you are actually DISTRIBUTING the documents, not merely making them available.

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As we have previously discussed, performance based bonus plans are subject to Section 409A and have to be compliant by January 1, 2009.  Employers who have permitted deferral elections to be made in these plans using the "six month" rule under 409A(a)(4)(B)(iii) should review these decision because of changes made to the definition of "performance-based" compensation.  If bonus deferral elections are expected in 2009 using the six-month rule but it turns out these bonuses are ineligible, the last chance to make the deferral election will be 12/31/08.

The "performance-based" compensation rule generally gives an exception to the requirement that a deferred election for compensation earned in a taxable year must be made no later than the close of the prior taxable year.  If the compensation qualifies as performance-based, the deferral election could be made at any time up until 6 months before the end of the current performance measurement period.  The final 409A regulations provides that compensation will be considered "performance-based" even if it will be paid regardless of the satisfaction of the specified measurement criteria if due to the service providers death, disability or a change in control event. 

This is important because of the impact of Revenue Ruling 2008-13 on 162(m) bonus plans.  2008-13 held that bonus plans that pay at a target in the case of involuntary termination or retirement do not result in deductible performance-based compensation even when bonuses are actually paid based on meeting specific goals.  So even if your bonus plan meets the 162(m) requirements, it may have to be changed in light of the 409A definitions of disability and change-in-control.

If this is all Greek to you, have your executive compensation counsel take a look at your bonus plans and make sure they comply.

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On July 26, 2007, the IRS published final 403(b) regulations providing updated guidance on administrative requirements for these plans.  The earliest applicability for these requirements is January 1, 2009, which is just around the corner.  Below is a summary of some of the primary areas that these regulations touch.  In broad terms, 403(b) plans are now going to have to look a lot more like 401(k) plans and will be held to more stringent administrative requirements.

First, plan documentation.  The final regulation take the position that all 401(b) annuity contracts and custodial account constitute a single 403(b) program that is required to have a written plan document that coordinates tax compliance generally and compliance with 403(b) specifically.  Some things that have to be coordinated include maximum contribution provisions of Code Section 415(c), maximum employee deferrals under 402(g), loan limits, anti discrimination rules, transfer of assets, hardship withdrawals and allocation of responsibility for compliance with tax rules.  So now there must be a plan document and it must encompass the entire operation of the plan.

Second, catch up contributions are now coordinated.  The final regulations confirm that plan participants who are eligible for both lifetime and age 50 catch-up contributions in the same tax year must first exhaust the lifetime catch-up before making an age 50 catch-up contribution.  Also, Revenue Ruling 90-24 is repealed.  Under current law, "90-24 Transfers" are governed by IRS Revenue Ruling 90-24, which permits transfers among 403(b) vendors without sponsor.  The new regulations change this approach.  Under the new regulations, the sponsors and vendor are required to enter into an agreement prior to allowing any "90-24 Transfers."  This new rule does not affect transfers or exchanges among investment funds within a single investment vehicle but would affect transfers among investment providers or different contracts or custodial accounts offered by a single provider.  Moreover, the new rule will only affect the "90-24 Transfers" and do not affect distributions upon termination of employment or otherwise.

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On May 21, 2008, the Genetic Information Nondiscrimination Act was signed into law.  Generally, this new law prohibits genetic discrimination in employment and health insurance benefits.  It does so by amending several laws, including HIPAA, ERISA, the Public Health Service Act and Medicare.  Clearly it will have an impact on employers and what follows is a general summary of the Act.  With the increasing ability to test for genetic causes for health conditions, there is rising concern that people with adverse genetic makeup will be the victim of discrimination.  To protect against that eventuality, the Act is designed to not just protect information, but preclude the misuse of information.  The Act is not clear on how an employer might get the information, but if it does, then the Act applies. 

Title One of the act prohibits group health plans from discriminating on the basis of genetic information with respect to eligibility, premiums and contributions.  So genetic makeup cannot be a consideration when setting rate, contribution levels or eligibility.  However, the Act does not preclude an increase in group rates for the manifestation of a disease or disorder commonly linked to genetic makeup, though manifestation of a disease or disorder cannot be used as "genetic information" to further increase rates for specific family members or dependents.  There are also certain prohibitions on the ability of health insurers to request genetic information or require testing.  Obviously HIPAA medical privacy rights also apply to information a plan obtains regarding genetic information.

"Genetic Information" is defined as information about an individual's genetic tests, information about genetic tests of family members and the manifestation of a disease or disorder linked to genetic information.  a "genetic test" is an analysis of an individuals DNA, RNA, chromosomes, proteins or metabolites that detect genotypes, mutations and chromosomal changes. 

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