A lawsuit against Vanderbilt University is moving forward based on allegations that the university and its fiduciaries mismanaged its retirement plan by paying excessive fees and maintaining poor investment options.
In that lawsuit, Cassell v. Vanderbilt et al., plaintiffs filed a 160-page complaint alleging multiple violations of ERISA. Cassell v. Vanderbilt, No. 3:16-cv-02086 (M.D. Tenn. Jan. 5, 2018). Cassell is one of numerous class action lawsuits that have been filed against prominent universities based on similar allegations. The lawsuits allege that Internal Revenue Code Section 403(b) plan fiduciaries breached duties of prudence and loyalty, and engaged in prohibited transactions. Vanderbilt University, like other schools, filed a motion to dismiss the claims. The court granted part of its motion, but allowed the rest of the lawsuit to proceed.
The PBGC’s missing participants program, which previously applied only to single-employer defined benefit pension plans, has been expanded to defined contribution plans, multiemployer defined benefit plans and small professional service defined benefit plans that end on or after January 1, 2018. The revised program provides a helpful alternative for plan administrators of terminating defined contribution plans, and also includes welcome clarifications that enhance the program available to defined benefit pension plans.
Avoid the culture wars and legal issues post-transaction. Join our lawyers Kristin E. Michaels, Maureen O’Brien and moderator Judith Wethall for a discussion of how to best integrate employees and employee benefit plans after a transaction.
On February 26, 2018, the US Court of Appeals for the Second Circuit (covering Connecticut, New York and Vermont) ruled that workplace discrimination on the basis sexual orientation violates Title VII of the Civil Rights Act of 1964 (Title VII).
The language of Title VII does not expressly prohibit discrimination on the basis of sexual orientation. However, in 2015, the US Equal Employment Opportunity Commission (EEOC) took the position that Title VII prohibits sexual orientation discrimination under the purview of prohibited sex discrimination. In 2016, the EEOC began filing sexual orientation discrimination lawsuits enforcing that position.
Circuit courts are divided on the question of whether claims of sexual orientation discrimination are viable under Title VII. In March of 2017, the Eleventh Circuit held that sexual orientation discrimination does not violate Title VII. The Seventh Circuit held the opposite the following month, and the Supreme Court declined to decide the split in December. With its en banc decision in Melissa Zarda et al. v. Altitude Express, dba Skydive Long Island, et al., the Second Circuit sided with the EEOC and the Seventh Circuit.
As a result of the decision, employers may see increased litigation in the area of sexual orientation discrimination. To protect against potential lawsuits, employers should consider updating their nondiscrimination policies to prohibit discrimination on the basis of sexual orientation and gender identity. In addition, employers should perform sexual orientation harassment training for employees and managers.
The decision also raises potential concerns for employee benefit plans. Although the Employee Retirement Income Security Act of 1974, as amended (ERISA) generally preempts state laws that relate to employee benefit plans, ERISA does not preempt other federal laws, including Title VII. While certain spousal benefits and rights under qualified retirement plans are required by federal law to be extended to same-sex spouses, the same explicit mandates do not apply to welfare plans. Employers should consider whether any of their employee benefit plans discriminate against employees with same-sex spouses (e.g., excluding same-sex spouses from coverage under a self-funded medical plan). Such distinctions may be ripe for legal action as a result of the decision and the EEOC’s ongoing enforcement efforts.
The ESOP industry is paying close attention to a Tenth Circuit appeal that will address the deferral of corporate deductions for certain accrued expenses payable to ESOP-participating employees. This appeal, which pertains to an underlying tax court opinion, Petersen v. Commissionerof Internal Revenue (decided June 13, 2017), is critically important to certain ESOP-owned S corporations for tax planning and other purposes.
Internal Revenue Code (IRC) Section 267(a)(2) defers deductions for expenses paid by a taxpayer to a “related person” until the payments are includible in the related person’s gross income. IRC Section 267(c) sets out constructive ownership rules for purposes of determining if certain persons are “related persons.” Section 267(c) provides that stock owned, directly or indirectly, by a trust shall be considered as being owned proportionately by its shareholders. In Peterson v. Commissioner, the US Tax Court addressed whether an ESOP trust is a “trust” for purposes of IRC Section 267(c).
On February 9, 2018, President Trump signed a bipartisan budget deal into law, effectively extending federal funding through March 23, 2018. The act includes multiple provisions affecting employee benefit plans, including relaxed hardship withdrawal rules and relief for individuals affected by the California wildfires.
McDermott’s Benefits Emerging Leaders Working Group provides benefit professionals with tools to better serve employees in an ever-changing and evolving benefits landscape.
Presentations will tackle the latest benefits hot topics and best practice solutions, supplemented with important networking opportunities aimed to connect tomorrow’s benefit leaders with a broad network of professionals.
Planned agenda topics include:
What’s Happening in Washington?
Lessons from an RFP
Lunch Discussion: Changing Behavior through Benefits Communication
Global Benefit Plans
Moderated Group Discussion (including Voluntary Benefits)
The Bipartisan Budget Act helped avoid another government shutdown, but did it cause problems for your benefit plans? Sarah L. Engle and D. Finn Pressly will discuss everything you need to know about the new legislation, including changes to hardship distributions and new wildfire relief. The panel will also bring you up to speed on other key developments in the employee benefits sphere over the last month.
The Department of Labor announced increased penalties for employee benefit plans under ERISA. The increases generally apply to penalties that involve employee benefit reporting and disclosure failings if the penalty is assessed after January 2, 2018, and if the violation occurred after November 2, 2015. We’ve compiled a resource outlining the ERISA penalty amounts assessed for violations on or before January 2, 2018, and those amounts assessed after January 2.
Last month, the Internal Revenue Service (IRS) published Revenue Procedure 2018-4, which modified the user fee schedule for submissions under the IRS’s Voluntary Correction Program (VCP).
Under the new fee schedule, all VCP compliance fees are now based on the total net plan assets reported on a plan’s annual Form 5500-series return. This means that for VCP submissions filed on or after January 2, 2018, compliance fees will be:
$1,500 for plans with assets of $500,000 or less;
$3,000 for plans with assets of over $500,000 to $10,000,000; and
$3,500 for plans with assets of over $10,000,000.
Prior to January 2, 2018, compliance fees were generally based on the total number of plan participants reported on a plan’s Form 5500, and ranged from $500 (for plans with 20 or fewer participants) to as much as $15,000 (for plans with 10,000 or more participants). In addition, special reduced compliance fees applied to VCPs involving some of the most common plan failures (e.g. certain plan loan and required minimum distribution failures). However, under the new fee schedule, most reduced fees have been eliminated. Only the reduced user fee for group submissions and the special fee waiver for terminating orphan plans remains unchanged.
Ultimately, for many large plan sponsors, the new asset-based fee schedule could significantly reduce the VCP compliance fee for correcting certain plan errors. However, for small plans covering fewer than 100 participants, the cost of correcting plan errors will increase to at least $1,500 (and perhaps even more, depending on the total net assets held by the plan). In addition, for all plan sponsors, the cost of correcting many of the most common plan errors will actually increase significantly.
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