The Chariot - A Helios HR Newsletter

What You Must Do Before Year End -
Avoid Compliance Headaches

In 2008 we experienced significant changes in the regulatory landscape for many compensation and benefits programs that companies offer as a standard part of their toolkit to attract, retain and motivate employees. During the final days of the year, here are just a few of the initiatives that employers should address in order to avoid headaches when dealing with compensation and benefits compliance.

Section 409A of the Internal Revenue Code

Although final compliance with this sweeping deferred compensation legislation has been delayed several times, Section 409A becomes fully effective on January 1, 2009. This wholly new section of the Internal Revenue Code affects many types of programs that provide for delayed payment of compensation on a tax-deferred basis.

In addition to evaluating traditional non-qualified executive benefit programs such as excess benefit plans, long-term bonus plans, supplemental executive benefit plans (SERPs) and phantom stock agreements, companies should examine any type of program that defers compensation for broad-based employee populations as well as executives.

Programs in the hot seat include (but are definitely not limited to):

bonus programs that pay out more than two and a half months after the end of a performance period,
severance packages,
employment agreements,
reimbursement or loan programs, and
executive life insurance programs.

This evaluation should focus on (1) whether a plan falls under the auspices of 409A and (2) if it does, ensuring compliance by the end of the year.

New Section 125 Rules

For most employers, section 125 of the Internal Revenue Code has long been associated with full flexible or cafeteria benefit plans. Many are surprised to learn that if they offer employees the opportunity to pay for premiums on a pre-tax basis, contribute to a medical flexible spending account or deduct pre-tax dollars for dependent care expenses, they have a section 125 plan! New regulations covering these programs are effective on January 1, 2009 and include a requirement for a formal plan document, nondiscrimination testing of benefits and administrative requirements.

403(b) Retirement Savings Plans

403(b) plans have been the cornerstone for retirement savings in the not-for-profit or governmental arenas. Traditionally, these programs have been exempt from many of the regulations covering similar 401(k) retirement plans. On January 1, 2009 many of those exemptions will no longer apply with the advent of requirements for formal plan documents, as well as provisions affecting universality of coverage, information sharing with vendors, coverage testing for employer contributions, and termination rules. All existing plans should be reviewed against these new guidelines as soon as possible.

Miscellaneous Legislation

Following are several other pieces of legislation that employers should be aware of:

New Family and Medical Leave Act regulations that provide leave for employees caring for a relative on military duty or injured in the course of duty.
The Genetic Non-Discrimination Act, effective January 1, 2009, prohibits discrimination in the workplace based up knowledge of a genetic condition.
The Hero's Earnings Assistance and Relief Tax Act of 2008 allows employers to amend their flexible spending account programs to allow reservists called to active duty to receive distributions from their FSAs so dollars are not lost at year end.

In summary, as year end draws near, make sure to add these compliance considerations to your “to do” list. Avoid headaches by tackling potentially costly compliance issues early and start the New Year off on a positive note.

Author: Aimee Lowry – Helios HR Practice Leader, Compensation and Benefits

Issue 12 | December 2008

In this Issue

What You Must Do Before Year End - Avoid Compliance Headaches

Life After Layoffs

Collaborative Technologies

Rising Costs of Litigation