Employee Benefits Law Report

Archives: Retirement Plans

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IRS Finalizes Rules for Reduction or Suspension of Safe Harbor Contributions

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 …

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

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.…

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

 …

The Supreme Court Rejects Same-Sex Prohibitions in DOMA

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 …

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

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 …

Plan Sponsors Have Greater Opportunities to Correct Errors Under New EPCRS

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 …

Are Annual 403(b) Universal Availability Notices Required?

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 …

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

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. …

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

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 …

The Early Retiree Reinsurance Program — Go Forth and Spend

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 …

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.

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. …

Washington Rides The Budget Carousel Once Again

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 …

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

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 …

Estoppel in ERISA: Simple Mistakes Can Lead to Costly Litigation

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 …

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

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 …

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

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

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 …

Requests for Proposal for 401(k) 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 …

IRS Announces Cost of Living Adjustments for 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

Tapping Your Retirement Funds Early? Uncle Sam Gets a Piece of the Pie

 Are you considering taking an early distribution from your retirement plan?  If so, now is a good time to brush up on the early distribution rules.  In Tax Tip 2011-42 (available  here), the IRS reminds you of the tax impact of taking a withdrawal from your retirement plan before you reach age 59 ½.

Early distributions are usually subject to an additional 10% tax.  You must report this 10% tax on the appropriate line of Form 1040 and may also be required to file Form 5329 “Additional Taxes on Qualified Plans (Including IRAs) and other Tax-Favored Accounts” (available here

Retirement Benefits for Residents of Puerto Rico

Are any of your employees residents of Puerto Rico? If yes, you may need to consider whether your retirement benefits are complying with recent developments regarding both the Puerto Rican Internal Revenue Code (“PR Code”) and the United States Internal Revenue Code (“US Code”).

If you are maintaining any Puerto Rican retirement plans, you will also want to contact your Puerto Rican tax counsel regarding changes made to the PR Code this year, required plan amendments, and retroactive qualification as necessary, all of which need to be addressed by the end of this year.…

Curtiss-Wright Corp. v. Schoonejongen Comes Back to Haunt Us — Follow Your Plan Amendment Procedures

We often are asked why plan amendment procedures vary from plan to plan, and why it is important to follow those procedures—however written. Sometimes there are unique reasons for the specified procedures, but very possibly the answer goes back to the 1990’s and a case called Curtiss-Wright Corp. v. Schoonejongen, which took us on an amendment procedure roller coaster ride. First, the district court in Curtiss-Wright invalidated a plan amendment to cease post retirement health care coverage on the basis that the plan failed to specify a valid “procedure for amending [the] plan, and for identifying the persons who …

Another Pension Plan Bites The Dust

On Monday, August 8, 2011, United States Bankruptcy Court Judge Mary Walrath ruled that Harry & David Holdings Inc. the Oregon-based gourmet food and gift company, can terminate its pension plan as part of a pre-arranged bankruptcy plan and emerge from bankruptcy free of its accumulated pension liability. The company convinced the court that it had to terminate the plan in order to successfully emerge from bankruptcy. The court permitted the termination despite the objections of the Pension Benefit Guaranty Corporation (the”PBGC”), which argued that the company could afford to keep the plan and that the termination really was being …

S&P Rating Downgrade May Cause Headaches For Pension Plans

Are we having fun yet?

The political scene in Washington, D.C. recently has lurched from an unsavory and perhaps a bit embarrassing battle over the federal debt ceiling to a cautious and uncertain reaction to the recent ratings downgrade of our country. On Friday, August 5, 2011, Standard & Poor’s (“S&P”) announced the reduction of the credit rating of the United States from a AAA rating to an AA+ level. This was the first such rating downgrade in the history of our country (the United States initially was awarded the top credit rating by S&P in 1941). While not claiming …

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