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Employee Benefits Law Report Reporting on recent trends and developments affecting employee benefits

Category Archives: Retirement Plans

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ERISA plan service provider avoids fiduciary status—what it means for service providers and plan sponsors

Posted in ERISA Fiduciary Compliance, Retirement Plans

A recent Third Circuit decision (Santomenno v. John Hancock, et. al.) has been described as a win for service providers to ERISA plans. It certainly is important because this decision, along with other fairly recent decisions, helps to illustrate when service provider actions become significant enough to make them fiduciaries. A somewhat less discussed point, however, is that this decision also serves as a reminder to plan sponsors about their fiduciary duties and the need to be vigilant in monitoring fees. This blog will provide a brief summary of the decision and the lessons it offers both to …


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Windsor decision on DOMA–does your plan have a year-end plan amendment deadline?

Posted in Retirement Plans

In April, 2014, the Internal Revenue Service (“IRS”) issued Notice 2014-19, which provided additional guidance addressing the impact on tax-qualified retirement plans of the Supreme Court’s decision in United States v. Windsor, 133 S. Ct. 2675 (2013). In the Windsor decision, the Supreme Court struck down as unconstitutional Section 3 of the Defense of Marriage Act (“DOMA”), which had defined marriage for federal law purposes as a legal union between one man and one woman. Before the Windsor decision, the term “spouse” did not include a same-sex spouse under federal employee benefit laws. After Windsor, same-sex marriages …


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Electronic filing requirements take another step –this time it’s top hat plans

Posted in ERISA Fiduciary Compliance, Retirement Plans

Section 110(a) of ERISA authorizes the Department of Labor (the “DOL”) to permit an alternative form of compliance with the reporting and disclosure obligations of Part 1 of Title I of ERISA for “top hat” plans (i.e., “unfunded” plans established for a select group of management or highly compensated employees). Under that authority, the DOL issued a regulation way back in 1975 (29 CFR 2520.104-23) to provide such an alternative method of compliance with reporting and disclosure requirements for top hat plans. Under that guidance, top hat plans are not required to file annual reports (tax-qualified plans use …


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Employee Benefit Plan Limits – Reference Chart for 2015 and Prior Cost-of-Living Adjustments

Posted in Retirement Plans

The Internal Revenue Code sets forth various dollar limitations on benefits, contributions, compensation under employee benefit plans. The IRS has announced limits for 2015 tax years. For your reference, the IRS Cost-of-Living Adjustments summarizes these dollar limitations, as modified by the IRS for cost-of-living adjustments (COLAs), for 2015 and prior years.…


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Could’ve, would’ve. What should a fiduciary do? Fourth Circuit decision could spell more uncertainty for retirement plan fiduciaries.

Posted in Benefits Issues Related to Mergers and Acquisitions, ERISA Fiduciary Compliance, ERISA Litigation, Retirement Plans

Coming on the heels of the U.S. Supreme Court’s Dudenhoeffer decision, which eliminated a pro-fiduciary presumption with respect to company stock holdings in qualified retirement plans, the 4th Circuit issued a decision last week that could cause even more unrest for plan fiduciaries. The case, Tatum v. RJR Pension Investment Committee, et al., represents a potential elevation of the standard “prudent fiduciary” rule as it had been widely understood it to govern ERISA retirement plans.

In short, the 4th Circuit in this case purports to require a fiduciary to determine whether a prudent fiduciary more likely than not would …


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Bankruptcy trumps protection for inherited IRA

Posted in Retirement Plans

The United State Supreme Court issued an opinion on June 12, 2014 in Clark v. Rameker dealing with a relatively simple issue at the intersection of bankruptcy law and retirement policy. The case dealt with the ability to exempt “retirement funds” as a category of assets from a bankruptcy estate when an individual files for bankruptcy. The question presented to the Court was whether funds in an inherited individual retirement account (“IRA”) qualify as “retirement funds” within the meaning of this bankruptcy exemption. With Justice Sonia Sotomayor writing the opinion, the Court held unanimously that they do not.

This case …


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New wrinkle for the Delinquent Filer Voluntary Compliance Program—trap for the unwary

Posted in ERISA Fiduciary Compliance, ERISA Litigation, Retirement Plans, Tax Issues

Plan administrators who fail to timely file Form 5500 annual returns/reports are subject to penalties under both Title I of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code (the “Code”). The Department of Labor (the “DOL”) has the authority to assess civil penalties of up to $1,100 per day against plan administrators that fail to file complete and timely returns/reports. In addition, the Internal Revenue Service (the “IRS”) may impose further penalties of $25 per day up to a maximum of $15,000 per return against administrators that fail to file complete and timely returns/reports.…


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ERISA Section 510: wanting to be a participant, versus being a participant

Posted in ERISA Litigation, Retirement Plans

My assistant informed me that my patience is shot and I need to do something about that, so I am channeling my energy into one issue. Since health care reform was enacted, I have been hearing about how we should anticipate a flood of ERISA Section 510 (29 U.S.C. Section 1140) discrimination cases from people who are not participants under the plan terms, but want to be participants. I don’t get it.

ERISA Section 510 provides, “[i]t shall be unlawful for any person to…discriminate against a participant or beneficiary…for the purpose of interfering with the attainment of any right to …


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Sixth Circuit retiree health care case to be heard by the U.S. Supreme Court

Posted in Health Care Reform, Retirement Plans

The U.S. Supreme Court has agreed to hear a Sixth Circuit retiree health care case, M&G Polymers USA, LLC v. Tackett. The issue is:

Whether, when construing collective bargaining agreements in Labor Management Relations Act (LMRA) cases, courts should presume that silence concerning the duration of retiree health-care benefits means the parties intended those benefits to vest (and therefore continue indefinitely), as the Sixth Circuit holds; or should require a clear statement that health-care benefits are intended to survive the termination of the collective bargaining agreement, as the Third Circuit holds; or should require at least some language in the …


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IRS Gives Plan Sponsors Flexibility to Expand Pre-Tax to Roth Conversion Opportunities

Posted in Retirement Plans

When I first started practicing law, a veteran in this area told me that the only way to make sense of the Internal Revenue Code was to understand that each provision existed so that Congress could make money. Does that explain why, as we reported last year, the American Taxpayer Relief Act of 2012 allowed any amount in a non-Roth account in eligible retirement plans (401(k) plans, 403(b) plans, and governmental 457(b) plans) to be converted to a Roth account in the same plan, whether or not the amount was distributable? Previously, plans could allow participants to convert their …


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What to Do About Employee Benefits When The Company is Headed Towards Insolvency

Posted in Executive Compensation, Fringe Benefits, Retirement Plans

If you are a board member or senior executive of a company that is rapidly failing, what do you about employee benefits? No one has ever liked my answer: freeze the benefits. This is counterintuitive advice for someone who is trying to keep the company afloat, and who would be personally affected by the loss of benefits. But let me explain why this is so important, using a complaint that was recently filed by the DOL, and the facts as they were alleged.

In January 2010, Home Valu ceased operations due to financial difficulties. Creditors then filed an involuntary petition …


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ESOP Trustee Indemnification Stymied by Arbitrator’s Legally Unsupportable Analysis – Schafer v. Multiband Corp.

Posted in ERISA Fiduciary Compliance, ESOPs, Retirement Plans

I am not a fan of binding arbitration in the context of ERISA plans, and a new Sixth Circuit decision, Schafer v. Multiband Corp., demonstrates why.

Two individuals (Schafer and Block) founded a company. As part of a series of corporate transactions, two employee stock ownership plans (“ESOPs”) were formed. Schafer and Block were appointed as trustees of the ESOPs, and entered into indemnification agreements with mandatory arbitration clauses. While the DOL was investigating its suspicion that the ESOPs had purchased stock at inflated prices, and with knowledge of this, Multiband entered into a purchase agreement to buy the …


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Frommert v. Conkright “Actuarial Heresy” is Back Again

Posted in ERISA Fiduciary Compliance, ERISA Litigation, Retirement Plans

Frommert v. Conkright, the Xerox “actuarial heresy” floor-offset plan case is back. This time, the Second Circuit has ruled that the new interpretation of the plan is unreasonable, and that ERISA’s “notice provisions” were violated.

Stating, “SPDs are central to ERISA,” the Court concluded that the SPD (summary plan description) did not satisfy 29 C.F.R. § 2520.102-3(l) because the SPD did not describe the offset provision in question in more detail. The Court held, “the Plan and its related SPDs violate ERISA’s notice provisions” and “Plaintiffs’ notice claims fall under Section 502(a)(3).” Frommert has been remanded to the district …


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Heimeshoff v. Hartford: Supreme Court Upholds ERISA Plan Document’s Three-Year Statute of Limitations for Benefit Claims

Posted in ERISA Litigation, Retirement Plans

I have been blogging about ERISA basic principles and respect for boundaries, and just got a little help from the U.S. Supreme Court. In Heimeshoff v. Hartford Life & Accident Insurance Company, a unanimous decision, the Court upheld the three-year statute of limitations set forth in the terms of the ERISA benefit plan document. The Court held that while a cause of action does not commence until the plan issues a final denial in the claims appeal process, the plan and its participants can agree to commence the limitation period before that time (here, at the proof of …


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IRS Finalizes Rules for Reduction or Suspension of Safe Harbor Contributions

Posted in Retirement Plans

During the most recent recession (some might say a mini depression), many employers requested greater flexibility to reduce or suspend safe harbor non-elective contributions to their 401(k) plans. They felt that a temporary reduction or suspension of contributions would be a better alternative than outright terminating their plans. Although the applicable regulations contained procedures for reducing or suspending safe harbor matching contributions, it wasn’t until Treasury issued proposed regulations on May 18, 2009, that a procedure was available to reduce or suspend safe harbor non-elective contributions. Recently, Treasury issued final regulations that revise the requirements for permitted mid-year reductions or …


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Employee Benefit Plan Limits – Reference Chart for 2014 and Prior Cost-of-Living Adjustments

Posted in Retirement Plans

The Internal Revenue Code sets forth various dollar limitations on benefits, contributions, compensation under employee benefit plans. The IRS has announced limits for 2014 tax years. For your reference, the IRS Cost-of-Living Adjustments summarizes these dollar limitations, as modified by the IRS for cost-of-living adjustments (COLAs), for 2014 and prior years.…


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Recent Litigation Provides Lessons for Employers and Executives Regarding Nonqualified Deferred Compensation Plans

Posted in Retirement Plans

I thought I would share the following link to an article I recently published in Bloomberg Law.  The article discusses recent litigation involving nonqualified deferred compensation plans, particular in cases involving a change in control or bankruptcy.  It also discusses strategies that employers and executives should consider to avoid this type of litigation in the future.

Read article from Bloomberg Law.

 …


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The Supreme Court Rejects Same-Sex Prohibitions in DOMA

Posted in Health and Welfare Plans, Retirement Plans

In a 5-4 opinion written by Justice Kennedy, the United States Supreme today held in United States v. Windsor that the provisions contained in the Defense of Marriage Act (“DOMA”) that exclude same-sex relationships from the definition of marriage and spouse for federal law purposes is unconstitutional as a deprivation of the liberty of persons that is protected by the Fifth Amendment of the Constitution of the United States. In doing so, Justice Kennedy has highlighted once again his role as a critical swing vote on the Court. He also has rendered a decision that seems likely to have far …


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403(b) Plan Sponsors Can Mitigate Risk By Taking Proactive Steps Under New EPCRS Guidance

Posted in Retirement Plans

Legendary UCLA Men’s Basketball Coach John Wooden once asked, “If you don’t have time to do it right, when will you have time to do it over?” If you sponsor a 403(b) plan, the IRS may have helped answer this question for you. In our prior blog, we highlighted the new Employee Plans Compliance Resolution System (“EPCRS”) guidance set forth in Revenue Procedure 2013-12 (the “Procedure”). This procedure also provides new guidance for 403(b) plan sponsors. Most critically, plan sponsors who did not adopt a written plan document by December 31, 2009 may submit a written plan document to …


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Plan Sponsors Have Greater Opportunities to Correct Errors Under New EPCRS

Posted in Retirement Plans

Do you sponsor a qualified retirement plan? If you’re a tax-exempt or governmental employer, do you sponsor a 403(b) plan? If you answered yes to either of these questions, you know that despite having the best administrative procedures in place, it is easy to make mistakes with respect to the plan. If the IRS were to catch these mistakes on audit, it has the potential to disqualify the plan. Fortunately, the IRS has the Employee Plans Compliance Resolution System (“EPCRS”) in which plan sponsors may correct errors voluntarily—sometimes with an IRS filing and reduced penalties, and sometimes with no filing …


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Are Annual 403(b) Universal Availability Notices Required?

Posted in Retirement Plans

Employers with 403(b) arrangements have asked whether they are required to provide annual “university availability” notices. The statute and regulations do not explicitly require this. Code Section 403(b) contains a universal availability requirement, whereby participation is made available to all nonexcludable employees. This includes providing all eligible employees with an effective opportunity to participate. Effective opportunity is satisfied “only if, at least once during each plan year, the plan provides an employee with an effective opportunity to make (or change) a cash or deferred election.” There are various ways to comply with the universal availability requirement, and whether this includes …


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How Do You Jack a 401(k) Plan? Santomenno v. John Hancock Life Insurance Company

Posted in ERISA Litigation, Retirement Plans

If you are the fiduciary of an ERISA plan that invested in John Hancock group variable annuity contracts, we hope you have heard that three individuals have filed a lawsuit, claiming to be representing your plan and its participants and beneficiaries. You will not be receiving service of process.

Santomenno v. John Hancock Life Insurance Company is an “excessive fee” case. The Third Circuit held that a participant may bring ERISA Sections 502(a)(2) and (3) claims without first making demand upon the plan trustee who entered into the contract with the defendant, and without joining the plan trustee. The U.S. …


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Slight Simplification to Extension Process for Form 8955-SSA (the Deferred Vested Benefit Disclosure for Form 5500)

Posted in Retirement Plans

The IRS has issued proposed regulations relating to the submission of Form 8955-SSA and automatic extensions of the time to file this Form.  Effective for any automatic extension filed on Form 5558 on or after June 21, 2012, any application for extension for the Form 8955-SSA will not require a signature.  This is a slight simplification to the overall extension filing procedure for qualified retirement plans that had previously required a signature for extensions of time to file Form 8955-SSA, which is generally prepared in conjunction with the preparation of a plan’s Form 5500, but not for extensions of time …


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The Early Retiree Reinsurance Program — Go Forth and Spend

Posted in Health and Welfare Plans, Health Care Reform, Retirement Plans

The Patient Protection and Affordable Care Act (“PPACA”) contained a provision that established the Early Retiree Reinsurance Program (“ERRP”), the goal of which was to encourage plan sponsors to retain health care coverage for retirees through at least 2013. The ERRP was designed to provide reimbursement to eligible sponsors of employment-based plans for a portion of the costs of providing health coverage to early retirees (and eligible spouses, surviving spouses and dependents of such retirees) during the period beginning on the date on which the program is established and ending on January 1, 2014. Under PPACA, $5 billion was appropriated …


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