Originally posted on BankBryanCave.com.
Employee Stock Ownership Plans offer an opportunity for banks to offer an attractive employee benefit plan, but can also do so much more. On the latest episode of The Bank Account, Jonathan and I are joined by Bryan Cave Partner, Steve Schaffer, to discuss the advantages to banks considering implementing an ESOP.
To hear the Bank Account Podcast, please visit here.
Retirement plans are complicated creatures to administer so it perhaps is not surprising that the process of determining the beneficiary of a deceased participant can present its own set of challenges and, if things go awry, expose a plan to paying twice for the same benefit.
These risks were recently highlighted in an 11th Circuit Court of Appeals decision decided in the aftermath of the Supreme Court case of Kennedy v. Plan Administrator for DuPont Savings and Investment Plan. In that 2009 decision, the Supreme Court ruled that a beneficiary designation naming a spouse had to be given effect even though the spouse had subsequently waived her interest in any of her husband’s retirement benefits in a divorce agreement.
In the 11th Circuit case, Ruiz v. Publix Super Markets, the question was
In today’s virtual world, we suspect most plan sponsors rely upon the self-certification process to document and process 401(k) distributions made on account of financial hardship. The IRS has recently issued examination guidelines for its field agents for their use in determining whether a self-certification process has an adequate documentation procedure. While these examination guidelines do not establish a rule that plan sponsors must follow, we believe most plan sponsors will want to ensure that their self-certification processes are consistent with these guidelines to minimize the potential for any dispute over the acceptability of its practices in the event of an IRS audit.
The examination guidelines describe three required components for the self-certification process:
(1) the plan sponsor or TPA must provide a notice to participants containing certain required
On January 20, 2017, President Trump signed an executive order entitled “Regulatory Freeze Pending Review” (the “Freeze Memo“). The Freeze Memo was anticipated, and mirrors similar memos issued by Presidents Barack Obama and George W. Bush during their first few days in office. In light of the Freeze Memo, we have reviewed some of our recent posts discussing new regulations to determine the extent to which the Freeze Memo might affect such regulations.
The Regulatory Freeze
The two-page Freeze Memo requires that:
On Friday, President Trump issued an order directing the Department of Labor to review the new regulation to determine whether it is inconsistent with the current administration’s policies and, as it deems appropriate, to take steps to revise or rescind it.
The long awaited Fiduciary Rule expanded protection for retirement investors and included a requirement that brokers offering investment advice in the retirement space put clients’ interests first. Financial institutions that either implemented, or were rapidly completing, their compliance efforts to comply with the Fiduciary Rule will need to assess the impact of this order on these efforts. Notwithstanding many earlier reports that the rule would be delayed 180 days, the date on which the rule was to take effect (April 10, 2017) has not been delayed. However, it is anticipated that a delay will be forthcoming, making the decision whether or not to proceed with further
Last week, the Department of Labor (DOL) released adjusted penalty amounts which are effective for penalties assessed on or after January 13, 2017, whose associated violations occurred after November 2, 2015. You might remember that these penalties were just adjusted effective August 1, 2016 (also for violations which occurred after November 2, 2015); however, the DOL is required by law to release adjusted penalties every year by January 15th, so you shouldn’t be surprised to see these amounts rise again next year.
All of the adjusted penalties are published in the Federal Register, but we’ve listed a few of the updated penalty amounts under the Employee Retirement Income Security Act of 1974 (ERISA) for you below:
General
On January 18, 2017, the IRS issued proposed regulations allowing amounts held as forfeitures in a 401(k) plan to be used to fund qualified nonelective contributions (QNECs) and qualified matching contributions (QMACs). This sounds really technical (and it is), but it’s also really helpful. Some plan sponsors of 401(k) plans use additional contributions QNECs and/or QMACs to satisfy nondiscrimination testing. Before these proposed rules, they could not use forfeitures to fund these contributions because the rules required that QNECs and QMACs be nonforfeitable when made (and also subject to the same distribution restrictions as 401(k) contributions). If you have money sitting in a forfeiture account, then by definition it was forfeitable when made, so that money couldn’t possibly have been used to fund a
It might be tempting to conclude that the recent Department of Labor regulations on disability claims procedures is limited to disability plans. However, as those familiar with the claims procedures know, it applies to all plans that provide benefits based on a disability determination, which can include vesting or payment under pension, 401(k), and other retirement plans as well. Beyond that, however, the DOL also went a little beyond a discussion of just disability-related claims.
The New Rules
The new rules are effective for claims submitted on or after January 1, 2018. Under the new rules, the disability claims process will look a lot like the group health plan claims process. In short:
The Securities Act of 1933 prohibits the offer or sale of securities unless either a registration statement has been filed with the SEC or an exemption from registration is applicable. Although most qualified plan interests qualify for an exemption from the registration requirement, offers or sales of employer securities as part of a 401(k) plan generally will not qualify for such an exemption. Accordingly, 401(k) plans with a company stock investment option typically register the shares offered as an investment option under the plan using Form S-8.
On September 22, 2016, the SEC released a Compliance and Disclosure Interpretation addressing the application of the registration requirements to offers and sales of employer securities under 401(k) plans that (i) do not include a company securities fund but (ii) do allow participants to select
The IRS recently released updated limits for retirement plans. Our summary of those limits (along with the limits from the last few years) is below.
Type of Limitation 2017 2016 2015 2014 Elective Deferrals (401(k), 403(b), 457(b)(2) and 457(c)(1)) $18,000 $18,000 $18,000 $17,500 Section 414(v) Catch-Up Deferrals to 401(k), 403(b), 457(b), or SARSEP Plans (457(b)(3) and 402(g) provide separate catch-up rules to be considered as appropriate) $6,000 $6,000 $6,000 $5,500 SIMPLE 401(k) or regular SIMPLE plans, Catch-Up Deferrals $3,000 $3,000 $3,000 $2,500 415 limit for Defined Benefit Plans $215,000 $210,000 $210,000 $210,000 415 limit for Defined Contribution Plans $54,000 $53,000 $53,000 $52,000 Annual Compensation Limit $270,000 $265,000 $265,000 $260,000 Annual Compensation Limit for Grandfathered Participants in Governmental Plans Which Followed 401(a)(17) Limits (With Indexing) on July 1, 1993 $400,000 $395,000 $395,000 $385,000 Highly Compensated Employee 414(q)(1)(B) $120,000 $120,000 $120,000 $115,000 Key employee in top heavy plan (officer) $175,000
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