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DOL Proposes Roadmap for Fiduciary Fee Disclosures

DOL Proposes Roadmap for Fiduciary Fee Disclosures

March 31, 2014

Authored by: benefitsbclp

Earlier this month, the Department of Labor published a proposed amendment to its February 2012 final regulations regarding the disclosures concerning services and fees that service providers must furnish to plan fiduciaries to permit the fiduciaries to determine that the contracts or arrangements with the service providers were “reasonable” as required by ERISA Section 408(b)(2).  Under the amendment, service providers would be required to furnish plan fiduciaries with a “guide” to the fee disclosures required under ERISA Section 408(b)(2) in certain circumstances.

The 2012 final regulations (which generally became effective July 1, 2012) did not require service providers to provide the disclosures in any particular format.  Moreover, the preamble to the regulations acknowledged that the disclosures could be made in multiple documents so long as the documents collectively disclosed all of the information required.

The proposed amendment is intended to introduce a guide to assist fiduciaries in locating the information they need to assess the reasonableness of the services provided and fees charged by the service provider.  The guide is required if the disclosures are made in multiple documents or a “lengthy” document.  The Department has requested comments on the page requirement that would trigger the index requirement as well as whether future guidance should include formatting standards (such font or margin requirements) to avoid manipulation of any adopted page requirement.  The guide must identify the document and page or other sufficiently specific locator, such as a section, that enables the  plan fiduciary to “quickly and

IRA Rollovers – One Really Does Mean One Now

March 28, 2014

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IRA Rollovers – One Really Does Mean One Now

March 28, 2014

Authored by: benefitsbclp

You are entitled to make one tax-free rollover from one individual retirement account or individual retirement annuity (“IRA”) into another IRA in any 1-year period, not one rollover into each separate IRA you own.  This is a new interpretation by the Tax Court and IRS.

Section 408(d)(3)(B) of the Internal Revenue Code limits rollovers from one IRA into another IRA to one in any 1-year period.  As provided in Proposed Treasury Regulation Section 1.408-4(b)(4)(ii), the IRS interprets this statutory limitation as applying separately to each IRA.  In the current version of IRS Publication 590, the IRS provides the following example:

Example. You have two traditional IRAs, IRA-1 and IRA-2. You make a tax-free rollover of a distribution from IRA-1 into a new traditional IRA (IRA-3). You cannot, within 1 year of the distribution from IRA-1, make a tax-free rollover of any distribution from either IRA-1 or IRA-3 into another traditional IRA. However, the rollover from IRA-1 into IRA-3 does not prevent you from making a tax-free rollover from IRA-2 into any other traditional IRA. This is because you have not, within the last year, rolled over, tax free, any distribution from IRA-2 or made a tax-free rollover into IRA-2.

However, in Bobrow v. Commissioner, T.C. Memo. 2014-21, the Tax Court recently held that the limitation applies on an aggregate basis, so that only one IRA-to-IRA rollover may be made in any 1-year period with respect to all IRAs you own.  In the above example, the Tax Court’s ruling

The Monthly Measurement Method: Is There a “There”, There?

March 25, 2014

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The Monthly Measurement Method: Is There a “There”, There?

March 25, 2014

Authored by: benefitsbclp

The proposed rules for implementation of the Employer Mandate (aka “Shared Responsibility for Employers Regarding Health Coverage” or “Play or Pay“) provided an optional Look-Back Method for identifying which employees are full-time and must be offered health care coverage to avoid excise taxes under Code Section 4980H, but they didn’t identify any alternatives to the Look-Back Method. The final regulations provide the Monthly Measurement Method as an alternative to the Look-Back Method. If you choose not to use the Look-Back Method, you by default have selected the Monthly Measurement Method.

The Monthly Measurement Method is aptly named: an employer identifies full-time employees based on the hours of service for each calendar month. There is no use of stability periods as with the Look-Back Method – generally, for any given month, an employee is or is not full-time and entitled to an offer of coverage.

There are some nuances, however. An employer will not be subject to excise taxes with respect to an employee because the employer does not offer him coverage until the first day of the fourth calendar month after he otherwise becomes eligible. This is helpful if you have a part-time employee who starts to pick up additional hours and becomes full-time – it is essentially a “first three months free” rule. (Keep in mind, the employer must still comply with the separate 90-day maximum waiting period rule, which could require coverage to be effective sooner.)

The rules are clear that this relief can only be

PBGC Adopts Uniform Premium Due Date

PBGC Adopts Uniform Premium Due Date

March 19, 2014

Authored by: Hal Morgan

In the latest step of a rulemaking process begun in 2013, on March 11 the Pension Benefit Guaranty Corporation published a final rule which provides that both flat rate and variable rate premiums for small defined benefit plans will be due 9½ months after the beginning of the plan year for which they are payable.  This change, which eliminates the system under which premium due dates varied based on the type of premium and the size of the plan, will accelerate the premium due date for small plans, which has been four months after the end of the premium payment year, by 6½ months.  While the final rule is applicable for 2014 and later plan years, a transition rule provides a four month delay in the new due date for small plans for the first plan year beginning after 2013 in order to ease potential cash flow problems raised by commentators.

Example, a small calendar year plan pays its 2013 premiums on April 30, 2014.  The plan’s 2014 premiums are due on October 15, 2014; however, the plan will have until February 15, 2015 to pay those premiums under this transition rule.

PBGC estimates indicate that the accelerated due date will shift earnings on premium payments from small plans to the PBGC, but that on average small plans will gain due to reduced administrative expenses.

Since small plans may have a valuation date that is as late as the last day of the plan year, the final rule

Fidelity Bonds and Fiduciary Liability Insurance….Do You Need Both?

While commonly confused as the same thing, a fidelity bond is separate and distinct from fiduciary liability insurance. A fidelity bond is specifically required by ERISA § 412(a) for any “plan official” For this purpose, a “plan official” is a fiduciary of an employee benefit plan and/or a person who handles funds or other property of such a plan.  Each plan official must be bonded for at least 10% of the maximum plan assets that he or she handles. Unlike a fidelity bond, fiduciary liability insurance is not mandated by ERISA.

A fidelity bond is fixed at the beginning of each year for each plan official covered by the bond, and guards the applicable plan against losses due to fraud or dishonesty – for example, theft – by any covered plan official.   Fiduciary insurance, on the other hand, is designed to insure the plan against losses caused by breaches of fiduciary responsibilities and, simultaneously, protect the covered fiduciary or fiduciaries from any personal liability resulting from such breaches.  The cost of the fidelity bond generally can be paid from plan assets.  The same is true of fiduciary liability insurance only if the insurance permits recourse by the insurer against the fiduciary in the case of a breach of a fiduciary obligation by the fiduciary.

In addition to ensuring that the fidelity bond meets   certain criteria under ERISA, the fidelity bond carrier must also report the fact that it has coverage and the amount of such coverage  annually on the

409A Day Comes a Day Early This Year

As we have noted previously, March 15 is tax “Code Section 409A Day.”  For employers with calendar fiscal years, that is generally the last day an amount can be paid and still qualify as a short-term deferral that is exempt from 409A’s stringent timing and form of payment requirements.  But what does one do when March 15 falls on a weekend, as it does this year?  You likely aren’t cutting payroll checks on a Saturday.  Can you wait until Monday to pay?

The answer is no.  The rules are clear that the payment generally has to be made by the 15th day of the 3rd month (hence, March 15) of the year following the year in which either the right to the compensation arises or the compensation is no longer subject to a substantial risk of forfeiture (and note that for this purpose, the 409A definition is different than the Section 83 definition).  (The deadline can be different if an employer has a non-calendar year fiscal year, but the concept is essentially the same.)

There are a few exceptions.  First, if making the payment by the deadline is administratively impracticable and such impracticability was not reasonably foreseeable when the right to the compensation arose, then payment can be made after the deadline, as long as payment is made as soon as practicable.  Of course, for 2014 it is difficult to argue that the impracticability wasn’t foreseeable simply because you didn’t happen to look into next March

FMLA Requirements Still Apply When STD Is Involved

FMLA Requirements Still Apply When STD Is Involved

March 5, 2014

Authored by: Christy Phanthavong

When an employee’s request for a medical leave may qualify for both unpaid leave under the Family and Medical Leave Act (“FMLA”) and compensation under an employer’s Short Term Disability (“STD”) plan or policy, it can be tempting to allow the STD process to drive the administration of the leave.  After all, a reduction in paperwork is always welcome, and the employer is permitted to rely on information received through the STD process when determining whether the employee is entitled to FMLA leave.

However, there are a number of FMLA notice requirements and other considerations that should be keep in mind when processing a claim for medical leave:

  • FMLA eligibility should be determined before moving on to the FMLA and/or STD entitlement determination.  Within five business days of receiving notice that an employee’s leave may be for an FMLA-qualifying reason, the employer must provide the employee with notice of the employee’s eligibility to take FMLA leave.  Thus, it is important to ensure that the eligibility analysis for FMLA purposes is conducted, and the employee is informed of his/her eligibility status, prior to moving into the determination of whether the employee’s health condition entitles the employee to leave (under the FMLA and/or STD policy).
  • FMLA eligibility can be attained during an STD leave.  Depending on the circumstances, an employee who is not eligible for FMLA leave when an STD or other medical leave begins may become eligible for the FMLA’s protections during the leave
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