Are you up to date with the latest changes in employee benefits laws and regulations? Our panel of Nixon Peabody employee benefits attorneys recently dissected the most pressing issues and emerging trends that every employer needs to know. Dive into our comprehensive summary to stay ahead of the curve.
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Managing Plan Forfeitures in 401(k) and 403(b) Plans
- New Lawsuits: Recent lawsuits target how employers use plan forfeitures under 401(k) and 403(b) retirement savings plans. Common plan provisions that give employers the choice to use forfeitures to reduce future employer contributions, rather than benefiting employees, are under attack as a breach of fiduciary duty.
- Spending Down Accounts: Proposed regulations require that plan forfeitures be spent down in the plan year after the year in which the forfeiture arose. Have you been carrying forward forfeiture balances from years ago? Under the proposed regulations, 2025 is a grace period to spend down historical balances in the way(s) permitted in your plan document.
Cybersecurity Tips for All Employee Benefit Plans
- The Department of Labor (DOL) is concerned that its 2021 guidance about cybersecurity best practices for employee benefit plans is getting little attention. The agency emphasizes that the cybersecurity tips apply to health and welfare plans just as much as retirement plans. Is it time for you to revisit whether you’re following the cybersecurity tips for all of your employee benefit plans?
Retirement Plan Litigation
- Pension Risk Transfer: Litigation focuses on whether annuity providers chosen for pension risk transfers are the “safest available,” with courts examining fiduciary decisions closely.
- Arbitration Clauses: Courts are divided about whether individual arbitration clauses in retirement plans violate ERISA’s effective vindication doctrine.
Mental Health Parity Compliance
- Final Regulations: Issued in September 2023, these regulations require health plans to provide mental health and substance abuse benefits in parity with medical and surgical benefits.
- Comparative Analysis: Plans must conduct detailed analyses to ensure compliance, including evaluating data about how benefits are managed and provided.
New Distribution Methods for Retirement Plans
- Emergency Personal Expense Distributions: This optional plan amendment permits a participant to withdraw up to $1,000 for unforeseen emergencies without the imposition of an additional 10% tax.
- Victims of Domestic Abuse Distributions: Plan sponsors can also amend their plans to permit victims of domestic abuse to withdraw the lesser of $10,000 or 50% of their vested account balance. This distribution option is also available without the imposition of an additional 10% tax.
Long-Term Part-Time Employees (LTPTEs)
- Eligibility Rules: The SECURE 1.0 and 2.0 acts established new elective deferral eligibility rules for LTPTEs. SECURE 1.0 required 401(k) plans to extend participation to employees age 21 and older who work 500 or more hours in each of three consecutive years. SECURE 2.0 required 401(k) and 403(b) plans to extend participation to employees who work 500 hours in each of two consecutive years.
- 403(b) Plan Guidance: Recent IRS guidance permits 403(b) plans to continue excluding certain part-time employees who are not LTPTEs, as well as qualifying students, regardless of their hours. The LTPTE rules apply only to ERISA-governed plans.
Collective Investment Trusts (CITs) for 403(b) Plans
- Pending Legislation: While SECURE 2.0 allows CITs for 403(b) plans, additional legislative changes are needed to operationalize this provision fully. It is unclear whether these changes can or will be addressed during Congress’s lame duck session.
Health Plan Fiduciary Responsibilities
- Increased Litigation Risk: With new disclosures and regulations, health plans face growing scrutiny and potential litigation, particularly for pharmacy benefit management (PBM) practices.
Actionable Steps for Employers
To mitigate risks and ensure compliance, employers should take the following actions.
- Review and Amend Plan Documents: Ensure plan language aligns with current laws and best practices.
- Conduct Regular Audits: Perform periodic audits of plan operations and service provider performance.
- Educate Participants: Implement education campaigns to inform participants about cybersecurity best practices and plan benefits.
- Monitor Legislative Changes: Stay informed about pending legislation that could affect plan operations and compliance requirements.
Staying abreast of the latest trends in employee benefits laws and regulations is crucial for employers. By understanding and implementing the insights featured in this briefing, employers can navigate the complex landscape of employee benefits better and ensure they are providing valuable, compliant benefits to their workforce.