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Year-End Qualified Retirement Plan Checklist

Year-End Qualified Retirement Plan Checklist

October 31, 2012

Authored by: benefitsbclp

It’s time to ensure year-end qualified plan deadlines are satisfied. Below is a checklist designed to help employers with this process.


The deadline for adopting the amendments listed below is the last day of the plan year beginning on or after January 1, 2012.  For calendar year plans, the deadline is December 31, 2012.  Note that some of the provisions became effective and required operational compliance prior to 2012.  Plan sponsors should review their plans’ administration to ensure that the plans have been operated in compliance with the applicable provision.

          1.      DEFINED BENEFIT PLANS

□        Code § 436 Funding Based Benefit Restrictions.  The Pension Protection Act of 2006 (“PPA”) added Section 436, which imposes restrictions on distributions and benefit accruals based on the funding status of a defined benefit plan, to the Internal Revenue Code (“Code”).  Plans that do not meet certain funding targets must limit benefit accruals, cannot be amended to increase benefit liabilities, and must limit certain forms of benefit payments.  These provisions are effective for plan years beginning after December 31, 2007.  In Notice 2011-96, the IRS extended the due date for adopting the amendment to the last day of the plan year beginning on or after January 1, 2012 and provided sample language for the amendment.

□        Cash Balance and Hybrid Plans.  PPA made several changes affecting cash balance and hybrid pension plans, including requiring three-year vesting and prohibiting interest credits at an

Proposed Changes to ISS Proxy Voting Policies

On October 16, 2012, Institutional Shareholder Services (ISS) issued for comment several proposed proxy voting policy changes.  The following would affect U.S. public companies:

Board Matters

Current Policy: Recommend vote against or withhold votes from the entire board (except new nominees, who are considered case-by-case) if the board failed to act on a shareholder proposal that received the support of either (i) a majority of shares outstanding in the previous year; or (ii) a majority of shares cast in the last year and one of the two previous years.

Proposed Policy: Recommend votes against or withhold votes from the entire board (with new nominees considered case-by-case) if it fails to act on any proposal that received the support of a majority of shares cast in the previous year.

The proposed change is intended to increase board accountability. ISS is specifically seeking feedback as to whether there are specific circumstances where a board should not implement a majority-supported proposal that receives support from a majority of votes cast for one year.

Say-on-Pay Peer Group

Current Policy: ISS’s pay-for-performance analysis includes an initial quantitative screening of a company’s pay and performance relative to a group of companies reasonably similar in industry profile, size and market capitalization selected by ISS based on the company’s Standard & Poor’s Global Industry Classification (GICS).

Proposed Policy: For purposes of the quantitative portion of the pay-for-performance analysis the peer group will continue to be selected from the company’s GICS industry group but will also incorporate

Private Health Insurance Exchanges: Look Before You Leap

Private Health Insurance Exchanges: Look Before You Leap

October 25, 2012

Authored by: benefitsbclp

Update December 12, 2012: See today’s post on this issue that provides additional insight.

In the wake of the Affordable Care Act’s public exchanges, large private employers and benefit consultants have been working on establishing private health insurance exchanges, which would permit employees of participating employers to purchase health insurance from a broader array of alternatives than are available under a single employer plan.  Generally, private exchanges are being marketed to large employers, many of whom self-insure, as a way to manage their health care costs through a defined contribution-style health program.  It is expected that the private exchange will have multiple levels of individual health insurance coverage provided by several different insurers, in contrast to employer plans, where there may be only one or two levels of coverage.

An employer who provides health coverage through a private exchange gives each employee sum of money, through a health reimbursement account, pre-tax through cafeteria plan, or post-tax, to pay the employee’s share of the premium.  Each employee selects health coverage from the options available through the exchange.  The employer’s expectation is that providing health insurance through a private exchange will limit the employer’s cost and give the employees more choice and more control over their health insurance and care.  Aon Hewitt has set up a private exchange and it has been reported that Sears and Darden Restaurants  expect to provide their employees with health insurance through a private exchange for the 2013 plan

Updated Qualified Plan Limits

Updated Qualified Plan Limits

October 22, 2012

Authored by: Chris Rylands

Last week, the IRS updated various qualified plan limits for 2013 to reflect increases in the cost of living.  A table of those limits, along with a listing of limits from prior years, is below.

Disclaimer/IRS Circular 230 Notice


408(b)(2) Ruminations from the Field

408(b)(2) Ruminations from the Field

October 17, 2012

Authored by: benefitsbclp

The regulations mandating that covered service providers disclose information, particularly fee information, required that the first “explosion” of the disclosure information occur by July 1, 2012. Prior to July 1, 2012, we provided lots of information about the disclosure requirements in an effort to assist the fiduciaries in avoiding a prohibited transaction (including some prior blog posts). After July 1, 2012, we followed up and asked if there were questions or if we could assist in any fashion. We have now had three months to take a look at what happened as a result of this first round of plan level fee disclosure and discuss the effort with other advisors. Looking primarily at defined contribution plans, and particularly 401(k) plans and ESOPs, we culled some anecdotal information, and from it, there appear to be a number of pretty consistent patterns and results.


  • Diligent fiduciaries who commonly utilize the services of independent investment advisors engaged the advisors to assist them in reviewing, understanding and acting on the disclosures.
  • These fiduciaries, where advisors are retained, identified the plan’s covered service providers and confirmed that all of them provided disclosures or, where something was missing or incomplete, followed the rules to obtain the disclosures.
  • These same fiduciaries, with the assistance of advisors, reviewed the disclosures and many have taken steps to work with the advisor to determine reasonableness of fees and necessity of services. Some have done comparisons by benchmarking plan fees to assist in determining reasonableness. Some

Potential Refund Claim for FICA Taxes on Severance Payments Made in a Reduction in Force

On September 7th, 2012, the 6th Circuit upheld the District Court’s decision in U.S. v. Quality Stores, holding that severance payments made to employees in connection with an involuntary reduction in force were not “wages” subject to FICA taxes.  United States v. Quality Stores, Inc. (In re Quality Stores, Inc.), 424 B.R. 237 (W.D. Mich. 2010), aff’d, 10-1563, 2012 U.S. App. LEXIS 18820 (6th Cir. September 7, 2012).   In so holding, the 6th Circuit reasoned that such severance payments were supplemental unemployment compensation benefits (“SUB Pay”) within the meaning of § 3402(o)(2) of the Internal Revenue Code (the “Code”) exempt from FICA taxes.

This holding is directly at odds with the position of the Internal Revenue Service (“IRS”), set forth in Revenue Ruling 90-72, that such severance payments are wages for FICA purposes and not SUB Pay.  According to the IRS, the definition of SUB Pay in § 3402(o)(2) of the Code is not applicable for FICA purposes.  The IRS has defined SUB Pay for FICA purposes through a series of revenue rulings.   Under the IRS definition, SUB Pay must be linked to the receipt of state unemployment compensation and must not be received in a lump sum in order to be excludable from wages for FICA purposes.  The 6th Circuit rejected the IRS definition reasoning that Congress intended the same definition to apply for both FICA and income tax withholding purposes and that, to the extent that Congress has permitted the IRS to

Governmental Plans: Are Your Plan Fees Reasonable?

October 15, 2012


Governmental Plans: Are Your Plan Fees Reasonable?

October 15, 2012

Authored by: benefitsbclp

Have you recently received fee disclosures from your plan service providers?  Do you know the total compensation your service providers receive for their services?  Are you aware how these costs impact plan participants?  Are these fees reasonable?

All plan fiduciaries, including governmental plan fiduciaries, have the duty to make sure fees paid for services are reasonable. However, until now, there hasn’t been any formal regulatory disclosure requirement governing service provider compensation. In 2012, the Department of Labor (DOL) finalized fee disclosure rules applicable to ERISA plans.  Generally, these rules were issued to assist plan sponsors and fiduciaries in determining whether plan-related fees are reasonable for and to provide transparency for plan fiduciaries and participants.  Although these fee disclosure rules only apply to ERISA-governed private sector plans, governmental plans should consider following these new rules as a fiduciary best practice.

The DOL fee disclosure rules consists of two disclosure requirements: (1) the service provider fee disclosure, and (2) the participant-level fee disclosure.

Service Provider Fee Disclosure

Generally, the service provider fee disclosure requires “covered service providers” (such as recordkeepers, brokerage services, investment advisors, investment fund and managers, etc.) to provide sponsors of defined benefit plans and defined contribution plans a disclosure of their fees and services. In general, the service provider fee disclosure requires:

  • A description of services to be provided pursuant to the contract or arrangement;
  • Information on whether the services provided to the plan by the provider are done in a fiduciary capacity or

Sixth Circuit Allows Reasonable Modifications of Retiree Health Benefits

On September 13, 2012, the Sixth Circuit in Reese v. CNH Am. LLC, 11-1359, 2012 WL 4009695 (6th Cir. Sept. 13, 2012) reiterated its 2009 ruling in the same case that an employer could unilaterally modify a retiree health plan, as long as the modifications were reasonable. The September 13th ruling was the Court’s second review of the case on appeal; the sequel to an unfolding drama.

In this case, the employer and labor union entered a collective bargaining agreement which stated the employer would provide healthcare benefits for retirees and their eligible surviving spouses. The issue was whether the lifetime healthcare benefits had vested and, if so, whether, and to what extent, the employer could modify the benefits. In 2009, the Court found that the lifetime health care benefits had vested pursuant to the collective bargaining agreement, but that the employer could modify the benefits as long as the modifications were reasonable. The Court reasoned that the collective bargaining agreement provisions on retiree health benefits had not been perceived as unalterable by the parties, since they had been altered on various occasions, such as to implement a managed health care plan and to take into account the enactment of Medicare Part D.

In 2009, the Court sent the case back to the lower court to determine if the modifications of the retiree health benefits were reasonable. The lower court incorrectly assumed that the modification had to be agreed to as part of the collective bargaining process. Comparing

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