On November 1, 2016, the US Department of Labor (DOL) released advance copies of the 2016 Form 5500 and Form 5500-SF annual return/report and their related schedules and instructions. Information copies of the 2016 forms, schedules and instructions are available on the DOL’s website. The advance copies were released for informational purposes only, and may not be used for filing. Official versions of Form 5500 and Form 5500-SF should be posted on the DOL’s website early next year.
On December 2, 2016, the Supreme Court of the United States granted the petitions for writs of certiorari to Advocate Health Care, et al. v. Stapleton, Maria, et al., St. Peter’s Healthcare, et al. v. Kaplan, Laurence and Dignity Health, et al. v. Rollins, Starla, all of which previously requested the Court review their arguments on whether the church plan exemption available under the Employee Retirement Income Security Act of 1974, as amended (ERISA), applies so long as a tax-qualified retirement plan is maintained by an otherwise qualifying church-affiliated organization, or whether the exemption applies only if, in addition, a church initially established the tax-qualified retirement plan. The three cases are being consolidated and will receive one hour total for oral argument.
On July 11, 2016, the Department of Labor (DOL), Internal Revenue Service (IRS) and Pension Benefit Guaranty Corporation (PBGC) announced a proposal to implement sweeping changes to the forms and regulations that govern annual employee benefit plan reporting on Form 5500. The proposed changes, which were published in the Federal Register on July 21, 2016, would significantly increase the annual reporting obligations for nearly all retirement plans. The changes also would have a considerable impact on employer-sponsored group health plans. For more information about the effect of the proposed changes on health and welfare plan sponsors, see Proposed Changes to Form 5500 Would Significantly Increase Reporting Obligations for Health and Welfare Plan Sponsors.
The DOL is seeking written comments on the proposed changes, which must be provided by October 4, 2016. The revised reporting requirements, if adopted, generally would apply for plan years beginning on and after January 1, 2019. Certain compliance questions will, however, be effective for Form 5500 series returns filed for the 2016 plan year.
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President Barack Obama signed into law the Bipartisan Budget Act of 2015 (the Budget Act), which raised Pension Benefit Guaranty Corporation (PBGC) premium rates beginning in 2017.
Background
Single-employer defined benefit pension plans must pay annual premiums to the Pension Benefit Guaranty Corporation (PBGC), the U.S. government agency that insures these plans. All single-employer defined benefit pension plans pay an annual fixed premium. Those plans with unfunded vested benefits at year-end must pay an additional variable rate premium. The due date for payment of these premiums has generally been the fifteenth day of the tenth full calendar month of the premium payment year.
In 2016, the fixed premium is set at $64 per participant. The variable rate premium is based on the amount of potential liability that the plan creates for the PBGC. Calculated on a per-participant basis, the variable rate premium is a specified dollar amount for each $1000 of unfunded vested benefits under the plan as of the end of the preceding year, subject to a $500 per-participant cap. For 2016, it will equal $30 per $1000 of underfunding, subject to the cap. Both premiums are indexed for inflation.
Changes to PBGC Rates
The Budget Act makes the following changes:
For more information regarding the PBGC premium increases described above or the other employee benefits provisions included in the Budget Act, please contact your regular McDermott lawyer or one of the authors.
Effective January 1, 2016, the Pension Benefit Guaranty Corporation (PBGC) altered the reportable event rules for defined benefit pension plans. Although new PBGC regulations make electronic filing of all reportable event notices mandatory, the regulations also substantially reduce the reporting requirements for pension plan administrators, sponsors and contributing employers.
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.
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.
by Paul J. Compernolle, Ashley McCarthy and Maureen O’Brien
Section 4043 of the Employee Retirement Income Security Act of 1974 (ERISA) requires pension plan sponsors to report a variety of corporate and plan events to the Pension Benefit Guaranty Corporation (PBGC). In November 2009, the PBGC proposed regulations that would have eliminated most of the reporting waivers available under current law and drastically increased the reporting requirements applicable to pension plans. Plan sponsors and practitioners widely criticized the 2009 proposed regulations as overly burdensome. Citing both this feedback and a 2010 executive order directing agencies to review existing regulations to identify those that could be made less onerous, the PBGC recently issued revised proposed regulations (the Proposed Regulations) that reinstate many of the exemptions that would have been eliminated under the 2009 proposed regulations. The Proposed Regulations would also replace the current funding-based exemption scheme with an approach based on the financial soundness of pension plans and their sponsors.
by Michael T. Graham, Stephen Pavlick and Patrick D. Ryan
The Pension Benefit Guaranty Corporation (PBGC) has announced a new pilot program that should substantially modify its enforcement strategy regarding pension liability for facility closures under ERISA Section 4062(e). Under this new program, PBGC will no longer assess liability against creditworthy companies or small plans, and instead will focus its enforcement efforts on larger companies in questionable financial health.
To read the full article, click here.
by Jeffrey M. Holdvogt and Susan Peters Schaefer
The Internal Revenue Service (IRS) recently discontinued its letter forwarding service for missing participants or beneficiaries entitled to a benefit under an employee retirement plan. Until now, retirement plan sponsors have frequently used the IRS letter forwarding service as a way to locate missing participants or beneficiaries to whom benefits are owed under a retirement plan. Following this discontinuance, plan sponsors will need to utilize another more expensive government forwarding service or utilize internet search tools, commercial locater services and credit report agencies to locate missing retirement plan participants.
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