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Tibble: Much Ado About Nothing?

OMG HeadlineEveryone seems to be talking about last month’s Supreme Court decision in Tibble v. Edison International, even though its holding wasn’t all that momentous. But I’m not complaining. As an ERISA lawyer, I love when ERISA developments hit mainstream news because, for at least one brief fleeting moment, there is a connection between the ERISA world in which I dwell and the rest of the world.

That said, some question whether Tibble warrants the level of attention it is generating. Some say Tibble merely affirms a well-known principle of ERISA law—that is that an ERISA fiduciary has an ongoing duty to monitor plan investments. Others see Tibble as a reflection of enhanced scrutiny of the duty to monitor plan investments, as well as recognition of a statute of limitations that facilitates enforcement of that duty.

Specifically, the Supreme Court found in Tibble that because retirement plan sponsors, as fiduciaries, have a “continuing duty to monitor trust investments and remove imprudent ones,” plaintiffs may allege that a plan sponsor breached a duty of prudence by failing to properly monitor investments and remove imprudent ones. Further, the Court found that such a claim is timely as long as it is filed within six years of the alleged breach of continuing duty.

Facts: Tibble arose when current and former employees of Edison who were participants in a 401(k) savings plan offered by Edison brought suit against the

What a Diff’rence Two Months Makes

CalendarIn a rule published on March 19, 2015, the Department of Labor (“DOL”) indicated that a year can last 14 months, at least when it comes to the disclosure of fees, expenses and other investment-related information by participant-directed individual account plans, such as 401(k) plans.  That rule is based on comments (complaints?) about the requirement under the applicable regulations to provide that information to participants “at least annually.”  The DOL initially defined that phrase in the regulations so as to require disclosure of investment-related information at least once every 12 months, and subsequently indicated that each disclosure had to be furnished within 365 days of the prior disclosure.  The DOL originally took that rather rigid position to prevent inconsistencies, delays and possible manipulation in the timing of annual fee disclosures.  For example, if the DOL had said the disclosures had to be provided “once per plan year” then one disclosure could, theoretically, be provided on December 31 of one year and the following year’s disclosure could be provided on January 2, which would be of little help to participants (and might cause the record keeper to quit). However, the DOL  also recognized that the fixed annual deadline in the original rule could create administrative difficulties, such as a constantly creeping deadline that would get earlier and earlier as time

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

PBGC Simplifies Premium Payments for Large Plans

On January 3, 2014, the Pension Benefit Guaranty Corporation published a rule changing the due date for flat rate premium payments by large defined benefit plans with 500 or more participants. Effective immediately for plan years beginning on or after January 1, 2014, the flat rate premium for large plans will be due 9½ months after the beginning of the plan year, which is the same date that the variable rate premium is due. As a result, the flat rate premium for large calendar year plans will be due on October 15, 2014.

This change should simplify the administration of premium payments for large plans and reduce potential penalties and interest for late payments. Previously, large plans have been required to pay the flat rate premium by the end of the second month of the plan year. Since the flat rate premium is generally based on the number of participants in the plan on the last day of the preceding plan year, most large plans have had difficulty in determining their premium by the due date. In order to avoid late payment penalties, those plans have been required to make estimated payments by the due date, and subsequently make a reconciling payment for any shortfall by the due date for the variable rate premium. Those reconciling payments created administrative burdens by requiring a second filing for the flat rate premium, and were also subject to interest, which, unlike the late payment penalties, could not be waived.

What a Difference a Day Makes

What a Difference a Day Makes

November 6, 2013

Authored by: Hal Morgan

Qualified plans frequently provide that participation commences on an entry date that coincides with or immediately follows completion of a year of service.  While there seems to be no issue with the concept that the calendar year begins on January 1 and ends on December 31, making that same determination with respect to periods that do not begin on the first day, or end on the last day, of a month sometimes seems to present difficulties.

During a question and answer session at the recent 2013 American Society of Pension Professionals & Actuaries’ Annual Conference, IRS officials were asked whether an employee who is hired on January 2, 2012 would become a participant on January 1 or April 1, 2013 in a plan providing for entry on the first day of the calendar quarter coinciding with or immediately following completion of one year of service.  This does not appear to be an isolated issue, as summary plan descriptions using an example such as this to illustrate the plan’s participation requirements have been known to indicate that the year of service would be completed on January 2, 2013, with entry on April 1, 2013.  However, in those circumstances, an IRS senior tax law specialist in employee plans technical compliance in effect indicated that the year of service would end on January 1, 2013 by stating that the employee would become eligible to participate on that date.  This answer assumes that the service requirement is satisfied on January 1, 2013.  Since that

FMLA Rights for (Some) Same-Sex Spouses

On August 9, 2013, the Department of Labor (DOL) took its first action in response to the Supreme Court decision in United States v. Windsor, which struck down those provisions of the Defense of Marriage Act (DOMA) prohibiting the treatment of same-sex couples who were legally married under applicable state law as spouses for purposes of federal law.  In an e-mail to DOL staff, Secretary of Labor Thomas Perez announced that several guidance documents had been updated to remove references to DOMA and provide that employees residing in states in which same sex marriage is legal would be entitled to leave under the Family and Medical Leave Act (FMLA) to care for a same-sex spouse with a serious health condition.  Specifically, a DOL Fact Sheet which describes the qualifying reasons for FMLA leave was revised to provide that a spouse is “a husband or wife as defined or recognized under state law for purposes of marriage in the state where the employee resides, including…same-sex marriage.”

While significant as an explicit statement of policy, the DOL’s action in effect simply confirms the general approach previously taken in the regulations under FMLA, which have always provided that an employee’s spouse is determined under the law of the state of residence.  Without the overlay of DOMA, that regulation leaves the determination of who is a spouse for purposes of FMLA with the state where the employee resides.  Accordingly, whether this is a signal of how same-sex marriages will be recognized for purposes of

Proposed Wellness Rules Provide Updates and Clarifications

Responsible federal agencies have recently issued proposed amendment to the existing regulations governing wellness programs.  As expected, the proposed amendments increase the maximum permissible reward (or absence of surcharge) under health-contingent wellness programs from 20% to 30% of the cost of coverage and increase the maximum permissible reward (or absence of surcharge) to 50% for health-contingent wellness programs that prevent or reduce tobacco use.

The proposed amendments clarify that a reasonable alternative standard developed by a medical professional who is not independent of the employer ceases to be reasonable if it conflicts with the recommendations of an individual’s personal physician and also clarify that it is not reasonable for an employer to seek verification of a health condition where the individual’s medical condition is known or patently obvious.

The proposed amendments also provide a safe harbor notice with regard to advertising the availability of an alternative standard in all plan materials describing the specific terms of a health-contingent wellness program.  The agencies also utilize the issuance of the proposed amendments to encourage employers to utilize a variety of reward systems and alternative standards.

The proposed regulations indicate that the work of the agencies is not complete.  While acknowledging complexities associated with apportioning rewards among eligible family members and with determining compliance with the size of a reward that is variable in nature, the proposed regulations do not provide any guidance on such issues.

The release of these regulations has prompted insurance industry representatives to advocate granting

Limitation of Letter Forwarding Program May Affect VCP Submissions and Plan Terminations

In Revenue Procedure 2012-35, the Internal Revenue Service limited the use of its letter forwarding program to “humane purposes,” such as emergency situations, and specifically indicated that it will not be available to locate missing participants who may be entitled to a retirement benefit.  The new limitation applies to letter forwarding requests postmarked on and after August 31, 2012.

One of the practical implications of that was discussed by IRS officials in a recent phone forum.  The correction of certain operational failures under the Voluntary Correction Program (“VCP”) may affect former participants by, for example, requiring corrective allocations or distributions.  In those cases, the VCP submission must indicate the method that will be used to locate and notify those individuals of the failure and the correction.  Many submissions designate the IRS letter forwarding program as one or more methods that will be used for that purpose.  As a result, an IRS agent may contact the plan administrator to revise the proposed correction method in a pending VCP submission, particularly if no alternative method of locating former participants has been proposed.  Alternative methods will have to be proposed in all new VCP submissions.

One IRS official indicated that several acceptable alternative methods are described in the Department of Labor’s Field Assistance Bulletin 2004-02, which discussed fiduciary obligations with respect to locating missing participants in defined contribution plan terminations.  The alternative methods described in FAB 2004-02 include the Social Security Administration letter forwarding service and the use of Internet search tools, commercial locator services, and

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