In the coming year, we expect to see continued activity on the part of the agencies and Congress with respect to employee benefits and executive compensation. The following is a preview of major guidance anticipated in 2013.
- Hybrid Plan Regulations. In 2010, Treasury and IRS proposed regulations governing “hybrid” pension plans, including cash balance plans and pension equity plans, and received extensive feedback from plan sponsors. According to the agencies’ current timeline, we anticipate that Treasury and IRS will issue both final regulations governing hybrid plans generally and proposed regulations governing issues specific to pension equity plans some time in 2013.
- Lifetime Income Options. As more plan sponsors consider adding lifetime income options to 401(k) and other defined contribution plans, we expect to see further discussion and possibly further regulation in this area. Earlier this year, Treasury and IRS published proposed guidance on certain issues connected with lifetime income options, and it is possible that this guidance might be finalized in 2013. The Department of Labor has indicated that it will be publishing guidance on providing illustrations of lifetime income options to plan participants, and in addition, we might see guidance on participant investment education and fiduciary issues particular to lifetime income options.
Health and Welfare Plans
- Affordable Care Act. 2013 will be a major year for implementation of the Affordable Care Act. Several important provisions of the Affordable Care Act come into effect in 2013, including:
- Reporting the cost of health coverage on Forms W-2 issued in January 2013.
- $2,500 limit on employee contributions to health flexible spending accounts.
- Increase in FICA payroll tax for wages over $200,000 ($250,000 for married couples filing jointly), and employer obligation to withhold payroll taxes (applies to wages over $200,000 regardless of the employee’s filing status).
- Notice to employees providing information on existence of health insurance exchange, premium tax credits, and tax treatment of health coverage. This notice must be provided by March 1, 2013 but federal guidance implementing the notice has not yet been issued.
- Payment of the first patient-centered outcomes research institute (“PCORI”) fee by July 13, 2013.
- Loss of deduction for retiree drug subsidy for coverage that is actuarially equivalent to Medicare Part D.
In addition, plan sponsors, states, and other market participants will need to prepare in 2013 for provisions of the Affordable Care Act that will become effective in 2014, including employer shared responsibility payments, contributions to transitional reinsurance funds, and the definition of minimum essential benefits. It is also possible that the agencies will issue final guidance on the non-discrimination rules for insured and self-insured health plans, which could require major changes for non-grandfathered plans.
- HITECH Act. In 2010, the Department of Health and Human Services issued proposed regulations under the HITECH Act, which would affect the Notice of Privacy Practices, business associate arrangements, and restrictions on the sale and use of protected health information, among other issues. It is anticipated that these regulations will be finalized in 2013. HHS has indicated that it will not begin enforcing the final regulation until 180 days after its publication, in order to give covered entities time to come into compliance.
- Final 409A Income Inclusion Regulation. Treasury has indicated that it will issue final rules on the penalty provisions of Section 409A of the Code in 2013. First proposed in 2008, the regulation governs the reporting requirements for non-qualified deferred compensation that complies with Section 409A, as well as the reporting, withholding and income inclusion requirements for Section 409A violations. If the regulation is finalized in 2013, employers will be required to begin reporting deferred compensation that complies with Section 409A on Form W-2 for years beginning with 2014.
- Disclosure of Compensation Consultant Conflicts. As previously discussed in this blog, beginning in 2013, public companies must disclose any conflicts of interest raised by the work of any compensation consultant and how such conflicts were addressed.
- Anticipated SEC Guidance. The SEC must still take action on a number of rulemakings relating to corporate governance and executive compensation matters under the Dodd-Frank Act, including rules governing pay-for-performance and internal pay equity, clawback policies, director and employee hedging of company stock, and “excessive” compensation at financial institutions.
- ISS and Glass Lewis Policies on Compensation. In 2013, ISS and Glass Lewis will implement new policies for the evaluation of executive compensation arrangements, as previously described in this blog.
- Definition of Fiduciary. The Department of Labor has indicated that it is moving forward with proposed revisions to the regulation defining fiduciary status under ERISA, and that the revised regulation is scheduled to be published in early 2013. The DOL previously published a proposed revision that would have greatly expanded the definition of a fiduciary, potentially including providers of investment education, valuations, newsletters and other publications. The proposed rule was withdrawn in part in response to significant concerns raised by employers and providers of financial services, but it is anticipated that the new revisions will expand the definition of a fiduciary in a similar manner.
- Changes to UK Compensation Rules. In the UK, several important changes to the regulations governing benefits and compensation take effect in 2013:
- A new type of employment contract for ’employee shareholders’ will be introduced, allowing employees to waive certain employment rights and protections in exchange for capital gains tax (CGT) exempt shares in their employer worth between £2,000 and £50,000.
- Shareholders of UK incorporated listed companies will be granted increased powers to determine directors’ remuneration.
- Changes to the rules governing Enterprise Management Incentive share option plans will make it easier for employees disposing of shares to obtain entrepreneurs’ relief and benefit from the 10% CGT rate.