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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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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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Allowing Employee Investment in an ESOP or 401(k) Employer Stock Fund Becomes a Bigger Gamble – Sixth Circuit Decision in Pfeil v. State Street Bank & Trust Co.

Posted in ERISA Fiduciary Compliance, ERISA Litigation, Retirement Plans

The Sixth Circuit has reversed the district court’s dismissal of the GM ERISA stock-drop suit, Pfeil v. State Street Bank & Trust Co., and is allowing the case to proceed.  You may recall that we cautioned fiduciaries of ESOPs and 401(k) plans allowing investment in employer stock to keep an eye on this case because it could be a game-changer. And now it is.

The GM plan offered a number of investment options, one of which was the GM stock fund. The GM stock fund was not a default fund, and participants could change investments on any business day. …


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Washington Rides The Budget Carousel Once Again

Posted in Retirement Plans

Consideration of our country’s annual budget has begun. On Monday, February 13, 2012, President Barack Obama released his proposed budget for fiscal year 2013 (which starts on October 1, 2012). While Democrats predictably praised Obama’s firm leadership, Republicans rushed to microphones to try to say “dead on arrival” in as many different ways as possible. In other words, Congress is starting just where they left off last year—and we know how that ended up.

Under the proposed budget, the President projects spending outlays of $3,803 trillion and revenue of $2,902 trillion in 2013 fiscal year, with a resulting deficit of …


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Lifetime Income Choices: It’s All About Pension Risk Management and Allocation of Risk

Posted in Retirement Plans

The Treasury has announced proposed regulations and rulings regarding lifetime income choices. This guidance presumes that employers want to adopt more pension risk by providing more annuity options in their defined contribution and defined benefit retirement plans.  (For links related to this new guidance, see bottom of this post.)

In its fact sheet, the Treasury discusses the financial risks of retirees and explains that the Treasury and Labor Department have undertaken an initiative to provide “more options for putting the ‘pension’ back in our private pension system.” Through this guidance, the Treasury is “removing regulatory barriers” to allow employers and …


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Estoppel in ERISA: Simple Mistakes Can Lead to Costly Litigation

Posted in ERISA Litigation, Retirement Plans

Plan administrators need to take steps to ensure that the information they provide to plan participants is accurate. Otherwise, plan participants may use this misinformation to bring an estoppel claim.

In civil litigation, defendants have long relied on equitable estoppel as an affirmative defense. The basic elements of an equitable estoppel defense are:

  • a definite misrepresentation of fact made to another person with the expectation that they will rely on it; and
  • reasonable and detrimental reliance on the misrepresentation

See, e.g., Heckler v. Community Health Servs. of Crawford County. The rationale behind this defense is that a party who …


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New Procedures for Filing Determination Letter Applications—Less Work Now, but More Problems Later?

Posted in Retirement Plans

Several important changes will take effect in the determination letter program beginning in 2012. The IRS has stated that these changes are intended to (1) reduce the burden on employers for filing determination letter applications (and in some cases, eliminate the need to file an application) and (2) reduce the time it takes for the IRS to process determination letter applications. The IRS first announced these changes in Announcement 2011-82 and later published them in Revenue Procedure 2012-6. We encourage employers maintaining qualified retirement plans to consider how these determination letter application program changes will impact them, and whether …


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New York’s Same Sex Marriage Law Has Broad Implications for Employee Benefit Plans

Posted in Fringe Benefits, Health and Welfare Plans, Retirement Plans

In a recent blog, we discussed a case that challenges the constitutionality of the Defense of Marriage Act (“DOMA”), which defines marriage for federal law purposes as a legal union between a man and a woman. DOMA was enacted during the administration of President Bill Clinton. Presuming DOMA is deemed constitutional by the courts and is not repealed by Congress (a possibility that appears remote at this point in time), employers theoretically could comply with federal employee benefits laws contained in ERISA by adopting (or maintaining) the DOMA definition of spouse. In turn, the broad preemption doctrine contained in ERISA …


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Will OMB Ever Push the Button to Finalize Fee Disclosure Regulations, and What About the Summary of Benefits and Coverage Regulations?

Posted in Retirement Plans

Phyllis Borzi, Assistant Secretary of the Employee Benefits Security Administration (“EBSA”) and one of the founding members of the Worldwide Employee Benefits Network (“WEB”) paid a visit to WEB’s Cleveland Chapter yesterday. One of the issues she addressed was the status of the retirement plan service provider disclosure regulations. Ms. Borzi explained that while she was expecting the release of final regulations any day, Office of Management and Budget (“OMB”) has not yet pushed the button to make this happen. These regulations, which will require substantial ramp-up time for compliance, are scheduled to become effective April 1, 2012. Understandably, employers …


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Requests for Proposal for 401(k) Plans

Posted in ERISA Fiduciary Compliance, Retirement Plans

It was great to see everyone who was able to attend our Employment Relations seminar in Columbus yesterday—”Strategies to Help You Build a Winning Team.” We thought we would share one of the questions that was asked: is it necessary to seek requests for proposal (“RFPs”) for a 401(k) plan on a certain schedule?

This question goes to the issue of fiduciary responsibility to be prudent in its selection and monitoring of investments, and to pay only reasonable expenses out of plan assets. ERISA Section 404(a)(1)(B) requires that a fiduciary must act “with the care, skill, prudence and diligence under …


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IRS Announces Cost of Living Adjustments for Retirement Plans

Posted in ESOPs, Retirement Plans

The Internal Revenue Service (“IRS”) recently announced cost of living adjustments affecting retirement plans. These new limitations are effective for tax year 2012. Many, but not all, applicable dollar limitations will increase. For this purpose, the IRS uses an adjustment process that is similar to the process used to adjust Social Security benefits (which also will increase effective in 2012).

Some of the more important increases relevant to retirement plans are as follows:

  • the elective deferral limit applicable to 401(k), 403(b) and certain 457 plans will be increased from $16,500 to $17,000;
  • the dollar limitation on the maximum annual benefit

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