IV. ANNUAL PARTICIPANT NOTICES
A. Retirement Plan Notices
The following is a summary of the various notices that an employer may be required to provide to plan participants in 2012.
1. Automatic Enrollment Plan Notice. An employee who is eligible to participate in an "automatic enrollment plan" must be provided each plan year with a comprehensive notice describing the following:
• The level of 401(k) contributions that will be made on the employee's behalf if the employee does not make an affirmative election
• The employee's right under the automatic contribution arrangement to elect to not have 401(k) contributions made on the employee's behalf (or to elect to have such contributions made in a different amount or percentage of compensation); and
• The manner in which contributions under the automatic contribution arrangement will be invested (including, in the case of an arrangement under which the employee may choose among two or more investment options, how contributions made under the automatic contribution arrangement will be invested in the absence of an investment election by the employee).
The notice must be provided at least 30 days, and not more than 90 days, before the beginning of each plan year. If an employee becomes eligible to participate in the plan after the 90th day before the beginning of the plan year and does not receive the notice for that reason, then the notice must be provided no more than 90 days before the employee becomes eligible, but not later than the date the employee becomes eligible to participate.
This notice is not required to be provided to a participant who previously made an affirmative election as to the 401(k) contribution rate, or previously affirmatively declined to make any such contributions.
2. Quarterly Benefit Statements. An employer that sponsors a plan which allows participants to self direct the investment of their accounts is required to provide a benefit statement to each participant at least quarterly. Among other items of information, the benefit statement must include:
• The value of each investment to which assets in the participant's account are allocated;
• The participant's vested accrued benefit, or the earliest date on which the accrued benefit will become vested; and
• An explanation of the importance of a well balanced, diversified investment portfolio, including a statement of the risk of holding more than 20% of a portfolio in the security of one entity.
The DOL has issued a model benefit statement.
3. QDIA Notices. Under DOL regulations on qualified default investment alternatives, a plan trustee or other fiduciary that chooses a sanctioned default investment fund on behalf of participants failing to make their own selection will enjoy the same general fiduciary relief as if the participants made affirmative investment decisions.
In order to qualify for this relief, participants must be provided a notice describing:
• The circumstances in which default investments may be made;
• An explanation of the default investment fund, including investment objectives, risk and return characteristics, and fees and expenses;
• The participant's opportunity to transfer his or her account out of the default investment fund to other investment alternatives; and
• Where the participant may obtain information about other investment fund alternatives.
The notice must be provided to a participant at least 30 days prior to the first default investment made on behalf of the participant, and at least 30 days before the beginning of each subsequent plan year.
4. Notice of 401(k) "Safe Harbor" Contributions. Employers can elect to make prescribed "safe harbor" contributions to a 401(k) plan on behalf of non-highly compensated employees. If an employer makes this election for any plan year, then the 401(k) plan is exempt from the otherwise applicable Actual Deferral Percentage and Actual Contribution Percentage nondiscrimination tests for that year.
In order to be eligible for exemption from the nondiscrimination testing rules, plan participants must be provided a written notice that states the employer's intent to make the safe harbor contributions, and explains what the safe harbor contributions will be. This notice must be provided to participants at least 30 days (but not more than 90 days) before the beginning of the plan year.
For employees who first become eligible to enroll in the plan after the 90th day before the beginning of a plan year, the notice is deemed to have been provided within a reasonable time period if provided no more than 90 days before the employee is eligible for enrollment, and no later than the date the employee becomes eligible. For example, in the case of new participants who will become enrolled as of a July 1 semi annual entry date, the notice must be provided not earlier than April 2 and not later than July 1.
5. Small Plan Audit Exemption Annual Report. A qualified retirement plan covering 100 or more participants as of the beginning of a plan year is required to have a certified audit report prepared by an independent public accountant. Small plans (those with less than 100 participants) can qualify for an exemption from the certified audit requirement if at least 95% of the assets of the plan as of the beginning of the plan year are invested in mutual funds or similar "qualifying plan assets."
If a plan satisfies the 95% qualifying plan assets standard, then in order for the plan to avail itself of the audit exemption, the summary annual report for the plan must include the following:
• A notice stating that participants can request, and receive without charge, evidence of the required ERISA fidelity bond and the information received from the financial institutions regarding the qualifying plan assets; and
• A notice stating that participants should contact the regional office of the DOL's Employee Benefits Security Administration if the financial institution information has not been made available as requested.
B. Group Health Plan Notices
An employer is required to provide a multitude of notices to employees who are covered under a group health plan. Certain of the notices must be provided each year; others only upon initial enrollment in the plan, or upon other events. The key notices are described below.
Notices Provided Solely Upon Initial Enrollment.
The notices described below must be provided in connection with an employee's initial enrollment in the plan. Once provided, they do not need to be provided again.
1. COBRA Rights Notices. A general COBRA notice must be furnished to a covered employee and to the employee's spouse within 90 days after the date on which the individual first becomes covered under the applicable group health plan.
Although both the covered employee and the employee's covered spouse are entitled to the notice, the Department of Labor allows an employer to satisfy the general COBRA notice requirement by mailing a single notice that is jointly addressed to the employee and spouse. If a spouse becomes covered under a plan after the employee has received the general COBRA notice (such as in the case of a new marriage), the spouse must be furnished a separate notice within 90 days of the coverage commencement date.
2. Notice of HIPAA Special Enrollment Rights. A group health plan is required to allow an individual to enroll in the plan outside of the normal open enrollment period if the individual loses eligibility for other health coverage, or if the individual becomes a dependent through marriage, birth, adoption, or placement for adoption. All eligible employees (i.e., employees who enroll in the plan as well as those who decline enrollment) must be provided with a notice advising of the HIPAA special enrollment rights. The notice must be provided at or before the time the employee is initially offered the opportunity to enroll in the plan.
3. Notice of CHIPRA Special Enrollment Rights. By reason of the Children's Health Insurance Program Reauthorization Act of 2009 ("CHIPRA"), individuals who lose coverage under Medicaid or a state child health insurance program ("CHIP"), or who become eligible for a premium assistance subsidy, are eligible for special enrollment under a group health plan. All eligible employees (i.e., employees who enroll in the plan, as well as those who decline enrollment) must be provided with a notice advising of the special enrollment rights at or before the time the employee is initially offered the opportunity to enroll in the plan.
4. Notice of Pre-Existing Condition Exclusion. A pre-existing condition exclusion is any limitation or exclusion of benefits relating to a condition based on the fact that the condition was present before the individual's effective date of coverage. A group health plan imposing a pre-existing condition exclusion must provide covered employees with a written general notice of the plan's pre-existing condition exclusion. The general notice must be furnished as part of the plan's enrollment materials. The notice must explain the existence and terms of any pre-existing condition exclusion under the plan, the length of the plan's look-back period, the maximum pre-existing condition exclusion period under the plan, and how the plan will reduce the maximum pre-existing condition exclusion period by creditable coverage. A pre-existing condition exclusion cannot be imposed on an employee or dependent of the employee until the individual is provided with the general notice.
Notices Provided Upon Initial Enrollment, and Annually Thereafter.
1. Women's Health and Cancer Rights Act. Group health plans are required to notify employees about the availability of medical and surgical benefits relating to a mastectomy. This information must be provided at the time of an individual's enrollment, and at least once per year thereafter. Employers typically discharge this responsibility by including the notice in the plan's open enrollment materials.
2. Employer CHIP Assistance Notice [Updated]. An employer that maintains a group health plan covering employees residing in a state that provide Medicaid or CHIP assistance in the form of premium assistance subsidies is required to provide a written notice to its employees informing them of the potential opportunities for premium assistance currently available by their state to help them pay for health care coverage. The notice must be provided once a year. The Department of Labor recently updated the model notice. The updated notice can be found at: http://www.dol.gov/ebsa/chipmodelnotice080211.doc
3. Medicare Part D Notice of Creditable Coverage [Updated]. Individuals who are enrolled in Medicare have the opportunity to receive subsidized prescription drug coverage through the Medicare Part D program. Medicare-eligible individuals who enroll after their initial eligibility period will be charged a late enrollment penalty. The penalty does not apply if the Medicare-eligible individual is covered under a group health plan that provides "creditable" prescription drug coverage. In this connection, employers are required each year to provide Medicare-eligible individuals covered under a plan with a notice advising whether the prescription drug coverage provided by their group health plan qualifies as "creditable" coverage. If so, the individual can defer enrollment in Medicare Part D without a penalty. In years past, the annual creditable coverage disclosure notice was required to be provided no later than November 15, which was the beginning of the annual election period under Medicare Part D. The health care reform legislation moved the Medicare Part D annual enrollment period to October 15th through December 7th, beginning in 2011. Under the general rules prescribed by the Centers for Medicare & Medicaid Services ("CMS"), the notice for a year is required to be provided prior to the beginning of the Medicare Part D annual election period. Consequently, the creditable coverage disclosure notice for this year must have been provided by October 15, 2011, one month earlier than in the past.
The CMS released a set of updated model creditable coverage notices. These updated model notices have been posted on the CMS webpage, the link to which is http://www.cms.gov/CreditableCoverage/Model%20Notice%20Letters.asp#TopOfPage
4. CMS Medicare Part D Disclosure Report. In addition to the Medicare Part D Creditable Coverage notice discussed above, the law also imposes an employer obligation to file a report with the CMS each year (the "Disclosure Report") providing information as to the creditable (or non creditable) coverage status of the prescription drug benefits provided under the employer's group health plans. The Disclosure Report must be filed with the CMS within 60 days following the first day of the plan year (i.e., March 1, 2012, for a calendar-year plan). The Disclosure Report must be submitted electronically via the CMS website: http://www.cms.hhs.gov/creditablecoverage. No other method for providing the report is permitted.
1. Notice of Material Reduction of Benefits. ERISA requires that employees be provided a notice summarizing any material reduction in services or benefits provided under a group health plan. The notice must be provided within 60 days after the date of the adoption of the material reduction in benefits. For this purpose, a "material reduction of a covered service or benefit" broadly includes any change that independently, or in conjunction with other contemporaneous modifications, would be considered by the average employee to be an important diminishment in covered benefits. Specific examples of material benefit reductions include increases in deductibles, co-payments or other amounts to be paid by a participant, or new conditions or requirements (e.g., new pre-authorization rules) to obtain covered services under the plan.
2. Summary Annual Report. A summary annual report (SAR) that highlights the basic financial aspects of a plan for a plan year must be provided to plan participants by September 30 of the following year (in the case of a calendar-year plan). If a filing extension for the Form 5500 is received, then the deadline for providing the SAR for a calendar-year plan is extended to December 15. If an insured group health plan or other welfare benefit program is not required to file a Form 5500 (e.g., plans that cover less than 100 participants), then the plan is also exempt from the SAR rules.
3. HIPAA Privacy Notice Reminder. Employees covered under a group health plan must receive a notice of the plan's HIPAA privacy practices upon enrollment. HIPAA further requires that covered employees be notified at least once every three years regarding the availability of the privacy notice, and how to obtain copies. As a "best practice," the reminder notice should be included in open enrollment packets that are distributed annually. Employers should review their privacy notices to ensure that they include the new HIPAA privacy and security provisions of HITECH, as well as the new restrictions on genetic information added by the Genetic Information Nondiscrimination Act.