Posted on April 29, 2009 by Keith R. McMurdy

Don't Forget About 401(k) Fees

Previously I wrote about the efforts of congress to provide requirements for additional disclosure of 401(k) fees.  They are at it again, this time through introduction of H.R. 1984, The 401(k) Fair Disclosure for Retirement Security Act.  Introduced on April 21, 2009, the Act requires additional disclosure of fees charged to 401(k) accounts.  This is not something that I think plan sponsors should fear, but there are some specific provisions of the Act that they should pay attention to.

First, the Act creates an affirmative obligation to disclose fees even where fee information is generally available from other sources.  Financial service providers would be required to disclose all costs and fees associated with each investment to both plan sponsors and participants.  A quarterly statement to participants will be issued listing the total contributions, earnings, returns and all fees subtracted from an account.  Before enrollment, participants would receive a statement listing the investment options including historical returns and fees assessed for each option.  In addition, financial service provides would have to disclose any financial relationship or potential conflict of interest with the plan sponsor.

Second, the Act requires that plan sponsors offer at least 1 low-cost index fund that tracks a broad market index.  Because index funds are not actively managed, it is assumed they would have lower costs and fees associated with their investment.  Some advisors have expressed concerns that this provision will be tantamount to a government seal of approval of index funds as an acceptable investment option.  However, this requirement does fit squarely in line with prior discussions over qualified default investment option which many plans have adopted.

Even if this Act does not eventually become law, I believe it illustrates how important it is for plan sponsors to be actively aware of the administration costs associated with their plans, and particularly the fees charged by service providers.  Sponsors should always be looking for the best service provider, but lower costs have to be a concern.  Plan sponsors would be wise to take this opportunity to review their plans and fees charged to make sure they are adequately disclosed, that they are being properly charged and that they are not excessive.

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Posted on April 21, 2009 by Keith R. McMurdy

So What is "Part Time" and How Does it Affect My Benefit Plans?

Unfortunately, these difficult economic times increase the likelihood that employees will be moved to part-time employment.  From an employee benefits perspective, moving someone to part-time can have an impact on things like eligibility and vesting so employers and plan administrators have to be aware of the various requirements in the regulations and how they define "part-time."

First, there is the 1000 hours per year requirement in IRS Code Sections 410(a)(3)(A) and 411(a)(5)(A).  For retirement plans, this means that eligibility and vesting for a "year of service" are satisfied when someone works 1000 hours in the plan year.  So going to "part time" for retirement plan purposes would really be governed by the 1000 hours measurement and working more than 1000 hours in a year would still constitute a full year of service even if it was not a 40-hour work week.

On the other hand, not all benefit plans are under that same requirement.  Major medical plans are governed in part by the eligibility requirements of 105(h), and 105(h)(3)(B) permits exclusion for part-time employees without specifically defining "part-time."  The 1000 hours does not apply to these plans, but IRS commentary provides that part-time means someone who has customary employment of less than 25 hours per week.  So eligibility to continue to participate in those plans may be protected by working an average of 25 hours per week, which is more than the 1000 hours for retirement plans.

Add to that the confusion over Section 125 plan and Section 129 Dependent Care Assistance plans.  Like retirement plans, they are subject to discrimination testing, which would seem to require the 1000 hour measurement (Section 129 actually references 410(a) and the 10000 hours).  However, Section 79 life insurance plans follow the same definition as Section 105(h), which means they permit exclusion for part-time employees without considering the 1000 hours of service.  Add to this the new requirement for Section 403(b) plans (a type of retirement plan, unusually for non-profit institutions) that retains the 1000 hours but provides that the plan generally does not have to be offered to employees expected to work fewer than 20 hours per week and you can see where there would be some considerable confusion over what it means to be "part-time."

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Posted on April 9, 2009 by Keith R. McMurdy

HIPAA Privacy Notice Deadline for 4/14/09

With all the excitement over COBRA compliance, it is important to remember that a reminder of the availability of HIPAA Privacy Notices are supposed to go out every three years.  The initial notice was due April 14, 2003, and then a reminder was to be sent April 14, 2006.  That means that another reminder is due April 14, 2009.  Health plans that have changed privacy practices or policies during the interim should issue a new notice and not simply a reminder that a notice is available.

The privacy notice reminder can be very short and need only remind participants that the privacy notice for the plan is available to them.  The reminder should include an explanation of how they can obtain the actual notice, be it from a company internet site or by making a request in writing to the plan administrator.  The reminder requirement can be satisfied in a variety of ways, including by (1) sending a copy of the actual privacy notice, (2) mailing the reminder to participants, or (3) including the reminder in a plan newsletter or some other publication.  However, it does not appear that electronic distribution of the reminder (such as through company e-mail) is satisfactory as it is not likely to be viewed by all intended recipients.

If your plan is an insured plan administered by an insurance company and you as the employer are not directly involved in the creation and distribution of notices, it is still recommended that you confirm wit your insurance company that a reminder has been issued and obtain a copy for your files.  If you have not previously issued any privacy notice or established privacy practices and procedures, please consider this a reminder that it has to be done.

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