Year-End Compensation & Benefits Considerations

The end of the year can be a busy time for Human Resource departments, and with the turmoil that resulted from COVID-19, the end of 2020 won’t be an exception. As 2020 comes to a close, it is important to keep on top of benefit plan deadlines and review all compensation plans to ensure a smooth transition into the new year. Hopefully, one with less turmoil!

The following is a list of key deadlines for compensation and benefit plan administration:

December 1, 2020

  • Safe Harbor Notices – Plan sponsors of safe harbor 401(k) or 401(m) plans must provide notices that describe certain features of the plan to eligible employees no later than 30 days before the beginning of each plan year.
  • Automatic Contribution Arrangement Notices – Plan sponsors whose plans feature an automatic contribution arrangement (automatic enrollment) must provide notices that describe certain features of the plan to eligible employees no later than 30 days before the beginning of each plan year.
  • Qualified Default Investment Alternative (QDIA) Notices – In order to maintain the safe harbor fiduciary protection associated with QDIAs, plan sponsors must provide annual notices that contain information regarding the QDIA and the right to direct investments to participants and beneficiaries no later than 30 days before the beginning of each plan year.

December 15, 2020

  • Summary Annual Report (SAR) if Form 5500 deadline was extended – Plan sponsors must provide a copy of the SAR to participants within two months of the filing deadline for the Form 5500.

December 31, 2020

  • Deadline to complete annual enrollment and plan coverage elections.
  • Discretionary Amendments – Plan sponsors must adopt discretionary amendments by the last day of the plan year which includes the effective date of the amendment.
  • Required Minimum Distributions (RMDs) – Participants must generally begin receiving distributions of at least a certain amount (the “required minimum distribution”) from their account each year after reaching a certain age.  The first distribution must be distributed by April 1st of the year after the participant reaches the age threshold (72).  The deadline to process each subsequent RMD is December 31st. However, The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) waives the RMD requirement during 2020 for IRAs and retirement plans, including beneficiaries with inherited accounts. This waiver also applies to individuals who reached the age threshold in 2019 and took their first RMD in 2020.
  • Actual Deferral Percentage (“ADP”) or Actual Contribution Percentage (“ACP”) Test Corrections – Plan sponsors may correct failed ADP or ACP tests by distributing amounts to highly-compensated employees (HCEs).  These distributions must be made by December 31st of the year after the plan year for which the test failed or additional contributions will need to be provided to non-highly compensated employees (NHCEs).

Other Q4 considerations

In addition to the deadlines for employee benefit plans, the end of the year is a good time for companies to review their current compensation and equity plans, including processes, to prepare for any changes in the upcoming year. Specifically, companies should consider the following:

  • Many compensation committees hold fourth quarter meetings to review company and CEO compensation and conducting these reviews early will ensure that those meetings go smoothly. Additionally, these reviews will not only help companies with their budget planning for the new year, but it will also give companies an opportunity to make any adjustments to their compensation philosophy and equity plans, as needed.
  • With the rise of pay equity legislation, companies may wish to conduct a pay equity audit and review their job descriptions prior to year-end. Specifically, Colorado companies will need to comply with the requirements of the Colorado Equal Pay for Equal Work Act effective January 1, 2021.
  • Review any new regulatory limits or applicable payroll tax changes for the coming year in advance to ensure that payroll and HRIS systems can be configured properly at year-end. 

It is important to keep in mind these key dates and considerations with respect to your benefits and compensation plans to ensure a smooth transition into the new year. Please don’t hesitate to contact our compensation and benefits professionals at Alvarez and Marsal if you need assistance as you prepare for the year-end.

About the Author

Jeff Swerdlow, J.D., LL.M.

Senior Director, Compensation and Benefits

Alvarez & Marsal

Direct:      +1.303.220.2078

Mobile:    +1.720.594.9720

6430 South Fiddler’s Green Circle, Suite 300
Greenwood Village, CO 80111

A&M Taxand | Taxand Global


February 26, 2021
Virtual | 7:00 AM – 4:30 PM

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