Retirement Plans Archives - Page 32 of 70

Supreme Court to Review Application of ERISA’s Six-Year Statute of Limitations in Tibble v. Edison Int’l.

by Patrick Ryan | Nov 5, 2014 | Retirement Plans

On October 2, 2014, the Supreme Court of the United States granted the plaintiffs’ petition for a writ of certiorari in Tibble v. Edison International to answer “Whether a claim that [Employee Retirement Income Security Act] ERISA plan fiduciaries breached their fiduciary obligation by offering higher-cost retail-class mutual funds to plan participants, even though identical lower-cost institutional-class mutual funds were available, is barred by 29 U.S.C. § 1113(1) when fiduciaries initially chose the higher-cost mutual funds as plan investments more than six years before the claim was filed.” The underlying claim asserts that the investment committee of the Edison 401(k) Savings Plan (the Plan), a defined contribution plan sponsored by Edison International, breached its fiduciary duty, although the issue presented to the Supreme Court focuses on the statute of limitations applicable to that claim.

The Plan’s investment committee selected a variety of funds for the investment of Plan assets. The funds selected by the investment committee were retail-class funds, which charged higher fees than the comparable institutional-class funds available in the retail market. Plan participants sued, alleging that lower-cost mutual funds were available and should have been selected for the Plan’s investment portfolio. The district court dismissed the case and the U.S. Court for the Ninth Circuit affirmed the dismissal on the basis that the funds were selected more than six years earlier and were therefore barred by ERISA statute of limitations.

ERISA provides a six-year period within which a participant or beneficiary may sue based on allegations of a breach of ERISA fiduciary duties. In general, the ERISA statute of limitation period begins to run on the date of the last act that constitutes a fiduciary breach owed to the beneficiaries. The U.S. District Court for the Central District of California dismissed several claims in the plaintiffs’ lawsuit, concluding that these claims were statutorily barred because the plaintiffs’ filed them after expiration of the six-year statute of limitations period. In addition, the district court ruled that it must defer to the investment committee’s selection of the higher-cost mutual fund by application of the deferential Firestone standard previously set by the Supreme Court.

In its petition for certiorari, the plaintiffs asked that the Supreme Court determine whether ERISA’s six-year limitations period begins on the date that the investment committee initially selected the higher-cost mutual fund options for the Plan’s investment portfolio or whether the on-going offering of such funds constituted a “continuing” fiduciary breach, thereby extending the period. The Supreme Court elected not to address whether the Firestone deference applies to fiduciary breach actions with respect to whether a fiduciary failed to follow plan terms in the selection of investment options.

This case follows the Supreme Court’s 2013 decision in Heimeshoff v. Hartford Life & Accident Insurance Co. Heimeshoff concluded that an ERISA plan’s contractual three-year limitations period for benefit claims was enforceable, despite the fact that the statute of limitations began to run before the participant’s benefit claim had been decided by the plan administrator. Conversely, in Tribble v. Edison, Int’l., the Supreme Court is asked when ERISA’s [...]

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IRS Announces Employee Benefit Plan Limits for 2015

by Jacob Mattinson and Stephen Pavlick | Oct 28, 2014 | Employee Stock Ownership Plans (ESOPs), Health and Welfare Plans, Retirement Plans

The Internal Revenue Service (IRS) recently announced the cost-of-living adjustments to the applicable dollar limits on various employer-sponsored retirement and welfare plans for 2015. Although many dollar limits currently in effect for 2014 will change, some limits will remain unchanged for 2015.

Read the full article.

PBGC Coverage May No Longer Apply to Puerto Rico-Only Qualified Retirement Plans

by Jeffrey Holdvogt | Oct 22, 2014 | Retirement Plans

Employers that sponsor defined benefit qualified retirement plans benefiting only Puerto Rico employees should be aware that Pension Benefit Guaranty Corporation (PBGC) coverage may no longer apply. Last year, the PBGC withdrew old prior opinion letters (Opinion Letters 77-172 and 85-19) regarding PBGC coverage in Puerto Rico and Guam. Those opinion letters articulated the PBGC’s position at that time, that Title IV of the Employee Retirement Income Security Act (ERISA) (providing for PBGC coverage), may apply to defined benefit plans covering only Puerto Rico participants if the Puerto Rico plan is either qualified under Section 401(a) of the U.S. Internal Revenue Code or has been operated in practice in accordance with the requirements of Section 401(a) for at least the five preceding years. Earlier this year, in remarks made at an enrolled actuaries meeting, PBGC officials stated that, going forward, PBGC will determine that a plan is not covered under Title IV of ERISA if (1) the plan’s trust is created or organized outside of the United States (e.g., Puerto Rico) and (2) no election under ERISA section 1022(i)(2) has been made. As a result, it appears the new PBGC position is that Puerto Rico-only qualified plans generally are not covered under Title IV of ERISA (although dual-qualified plans with Puerto Rico participants are covered). Since few Puerto Rico plans have made an election under ERISA section 1022(i)(2) due to the strict U.S. laws applicable to such arrangements, this new PBGC position will affect a number of Puerto Rico-only defined benefit plans. PBGC officials also stated that if the PBGC determines that a plan is not covered under Title IV of ERISA, it may refund up to six years of premiums.

Employers with Puerto Rico-only defined benefit plans should consider whether PBGC coverage of their plan is still possible or desired. If not, a refund of PBGC premiums should be sought.

PBGC Intends to Monitor Lump-sum and Annuity Cashouts Under Defined Benefit Plans

by McDermott Will & Emery | Oct 15, 2014 | Retirement Plans

The Pension Benefit Guaranty Corporation (PBGC) stated in a filing published in the Federal Register on September 23, 2014, that it intends to require that plan sponsors report to the PBGC “certain undertakings” to cashout or annuitize benefits for specified groups of employees under defined benefit pension plans. PBGC intends to make this reporting part of the 2015 PBGC premium filing procedures.

Recently, many defined benefit pension plan sponsors have been implementing lump-sum distribution windows, primarily to former employees who are not receiving benefits, as part of a de-risking strategy. If participants elect to take lump-sum distributions in lieu of annuity payments, the plan sponsor can minimize the risk of interest rate fluctuations negatively affecting plan assets.

In addition, lump-sum distribution windows under defined benefit pension plans typically have the effect of reducing the number of defined benefit pension plan participants because eligible participants are paid their full benefit under the plan at the time of the lump-sum distribution. The reduction in defined benefit pension plan participants has the effect of reducing premium payments due from such plans to the PBGC.

Some pension rights advocates have recently raised public policy concerns about the increasing use of lump-sum cashouts, claiming that cashouts jeopardize the retirement security of plan participants by providing them with unrestricted access to their retirement funds. However, it is the reduction in premium payments that is likely most concerning to the PBGC. PBGC relies on annual premium payments from a dwindling number of ongoing defined benefit pension plans to fund guaranteed benefits under plans that have been taken over by the PBGC.

At this time, the PBGC is only proposing to require disclosure of certain lump-sum distributions and annuitizations, and has not proposed any other type of PBGC review or oversight.

New Money Market Fund Rules Require Review by Retirement Plan Sponsors

by Maggie McTigue and Stephen Pavlick | Oct 9, 2014 | Retirement Plans

The U.S. Securities and Exchange Commission recently amended the rules governing money market funds in an effort to increase the stability and liquidity of these funds in times of economic stress. Sponsors of retirement plans should consider how their use of money market funds should be changed in light of these revised rules.

Read the full article.

Tax Prepayment Window Closes on October 31, 2014, for Puerto Rico Retirement Plans

by Jeffrey Holdvogt | Oct 7, 2014 | Retirement Plans

On July 1, 2014, Puerto Rico adopted new legislation (Tax Act 77), which provides a window from July 1, 2014 – October 31, 2014, for participants in Puerto Rico retirement plans to prepay at reduced rates Puerto Rico income tax on the value of accrued benefits. On August 6, the Puerto Rico Treasury Department issued guidance on the prepayment option via Administrative Determination No. 14-16. The guidance clarified how participants in Puerto Rico-qualified retirement plans may prepay to the Puerto Rico Treasury Department by October 31, 2014, income tax at the rate of eight percent on all or a portion of the participants’ vested balance or accrued benefit. Retirement plan sponsors with Puerto Rico employees, both dual-qualified and Puerto Rico-only plans, should make sure their administrators are aware of and can comply with the tax prepayment rules in the event a participant submits a request.

The income tax prepayment may be made by an individual participant or by the plan trustee on behalf of a participant. If a participant is making the tax prepayment, he or she must complete and file three copies of Form SC 2911 with the Puerto Rico Treasury Department, along with a recent copy of a plan statement (no older than 30 days) reflecting the vested account balance or accrued benefit. Plan sponsors and administrators should expect that they may be asked by plan participants for updated account statements or accrued benefit estimates in order to satisfy this requirement.

Plan participants may make the tax prepayment from their own funds or from plan assets, if they are eligible to take a distribution. Plan administrators may need to provide assistance in completing Form SC 2911 because it requires information about the plan that participants normally would not have access to, such as when the plan filed for a determination letter with the Puerto Rico Treasury Department and when the plan received a favorable determination. After the Treasury Department stamps and returns two original copies of the prepayment form to the participant, the participant must provide the plan administrator with one of two originals within 30 days, as evidence of the tax prepayment.

Plan sponsors who maintain retirement plans qualified in Puerto Rico should consider how they may wish to communicate this option to participants, keeping in mind that time is short, as the window ends on October 31, 2014. Plan sponsors should also make sure that administrators are able to separately track the accounts of participants who have prepaid the tax so that, upon a subsequent distribution, only amounts for which the tax was prepaid are subject to Puerto Rico income tax and withholding. Note that a similar prepayment window occurred in 2006, so plan administrators may have systems already set up to track for similar accounts or benefits that had income tax prepaid.

Senate Unanimously Approves Bill Modifying ERISA Section 4062(e)

by Michael T. Graham and Patrick Ryan | Sep 30, 2014 | Retirement Plans

On September 16, 2014, the United States Senate unanimously approved Senate Bill 2511, which would amend Section 4062(e) of the Employee Retirement Income Security Act of 1974, as amended (ERISA), to clarify the definition of substantial cessation of operations. ERISA Section 4062(e) enables the Pension Benefit Guaranty Corporation to require that employers financially guarantee pension obligations based on a plan’s underfunded termination liability when an employer that maintains a pension plan shuts down operations at a facility, and as a result, more than 20 percent of the employer’s employees who are plan participants incur a separation from employment.

The bill revises ERISA Section 4062(e) to clarify that a “substantial cessation of operations” occurs when an employer permanently ceases operations at a facility and, as a result, there is a “workforce reduction” of more than 15 percent of all eligible employees at all facilities in the contributing employer’s controlled group. Under the amendment, a “workforce reduction” would mean the number of eligible employees at a facility who are separated from employment by reason of the permanent cessation of operations of the employer at the facility. Certain eligible employees would be excluded from the reduction analysis, including employees who, within a reasonable period of time, are replaced by the employer, at the same or another facility in the United States, by an employee who is a citizen or resident of the United States. In addition, employees would not be not taken into consideration for these purposes following the sale or other disposition of the assets or stock of the employer if the acquiring entity maintains the single-employer plan of the predecessor employer that includes assets and liabilities attributable to the accrued benefit of the employee and either (1) the employee is separated from employment at the facility, but within a reasonable period of time, is replaced by the acquiring entity by an employee who is a citizen or resident of the United States, or (2) the eligible employees continues to be employed at the facility of the acquiring entity.

The Congressional Budget Office estimates that Senate Bill 2511 would reduce the contributions that plan sponsors are required to make to their plans as a result of terminating operations at a facility, leading to increases in employer revenues and decreases in direct spending. The House of Representatives concluded its fall session on September 19, 2014 without acting on the bill. It remains to be seen whether the House will take up the Senate bill when it returns for a “lame-duck” session after the mid-term elections.

View From McDermott: Top IRS and DOL Audit Issues for Retirement Plans

by Jeffrey Holdvogt | Sep 4, 2014 | Retirement Plans

Every year the Internal Revenue Service (IRS) and Department of Labor (DOL) conduct thousands of audits of employee benefit retirement plans. While IRS audits focus on compliance with the Internal Revenue Code, and DOL audits focus on violations of the Employee Retirement Income Security Act of 1974, as amended (ERISA), a review of these audits over the last five years reveals that auditors at both agencies are increasingly focused on the internal controls employers maintain for their employer benefit plans.

Please click here to read the full article View From McDermott: Top IRS and DOL Audit Issues for Retirement Plans, published by Bloomberg BNA Pension & Benefits Daily on 8/13/14.

PBGC Coverage May No Longer Apply to Puerto Rico-Only Qualified Retirement Plans

by Jeffrey Holdvogt | Aug 14, 2014 | Retirement Plans

Employers that sponsor defined benefit qualified retirement plans benefiting only Puerto Rico employees should be aware that Pension Benefit Guaranty Corporation (PBGC) coverage may no longer apply. Last year, the PBGC withdrew old prior opinion letters (Opinion Letters 77-172 and 85-19) regarding PBGC coverage in Puerto Rico and Guam. Those opinion letters articulated the PBGC’s position at that time, that Title IV of the Employee Retirement Income Security Act (ERISA) (providing for PBGC coverage), may apply to defined benefit plans covering only Puerto Rico participants if the Puerto Rico plan is either qualified under Section 401(a) of the U.S. Internal Revenue Code or has been operated in practice in accordance with the requirements of Section 401(a) for at least the five preceding years. Earlier this year, in remarks made at an enrolled actuaries meeting, PBGC officials stated that, going forward, PBGC will determine that a plan is not covered under Title IV of ERISA if (1) the plan’s trust is created or organized outside of the United States (e.g., Puerto Rico) and (2) no election under ERISA section 1022(i)(2) has been made. As a result, it appears the new PBGC position is that Puerto Rico-only qualified plans generally are not covered under Title IV of ERISA (although dual-qualified plans with Puerto Rico participants are covered). Since few Puerto Rico plans have made an election under ERISA section 1022(i)(2) due to the strict U.S. laws applicable to such arrangements, this new PBGC position will affect a number of Puerto Rico-only defined benefit plans. PBGC officials also stated that if the PBGC determines that a plan is not covered under Title IV of ERISA, it may refund up to six years of premiums.

Employers with Puerto Rico-only defined benefit plans should consider whether PBGC coverage of their plan is still possible or desired. If not, a refund of PBGC premiums should be sought.

UK Pensions Auto-Enrolment Scheme

by McDermott Will & Emery | Aug 12, 2014 | Employment, Retirement Plans

A radical change to UK pension law is expected to affect tens of thousands of organisations with UK-based employees in 2014. This follows the imposition of an unprecedented obligation on employers to “automatically enrol” eligible employees in, and to contribute financially to, a pension scheme that meets specific, carefully defined criteria.

Read the full article.

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