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Spring is Around the Corner…Do You Need a Plan Audit?

The employee benefit plan audit season is quickly approaching for calendar year plans. If the number of participants in your defined contribution plan, defined benefit plan, or employee stock ownership plan crossed the magical threshold of 100 or more participants in 2011, your annual Form 5500 filing responsibilities now include engaging an independent accounting firm to perform an audit of your plan. Form 5500s are due by the seventh month following the end of the plan year. Therefore, if you sponsor/administer a calendar year plan, you must file the Form 5500 by July 31; however, a 2½ month extension is automatically made available by filing IRS Form 5568. Even with an extension, it is important to get the audit process underway sooner rather than later (even if this isn’t your first plan audit).

As part of the audit process, the auditor will examine various documents to

Determination Letters and Proposed Amendments – Don’t Wait!

February 29, 2012

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Determination Letters and Proposed Amendments – Don’t Wait!

February 29, 2012

Authored by: benefitsbclp

If you submitted your retirement plan for a determination letter review, hopefully you got your determination letter back in quick order and it was perfect. However, everyone makes mistakes, even (sometimes) the IRS. It pays to double-check to make sure that all amendments you submitted are referenced in the favorable determination letter to the extent they were not covered by a prior determination letter. If all amendments since the last determination letter are not referenced in the current determination letter, you could have a potential issue down the road in an IRS audit or during the next determination letter application submission. The good news is that the IRS has a program for reviewing and correcting determination letter errors. The program requires you submit a request in writing detailing the corrections you believe are required.

But what if, during the course of your determination letter review, the IRS required you to

Five Common 409A Design Errors: #2 Reimbursements

Five Common 409A Design Errors: #2 Reimbursements

February 24, 2012

Authored by: benefitsbclp

Over the next several weeks, we will be writing about five common Code Section 409A design errors and corrections.

It should (but will not) go without saying that Code Section 409A has an extraordinarily broad reach. Many claim this reach is overbroad. One commonly cited example of this overbreadth is that Code Section 409A regulates taxable employee reimbursements.

Why does Code Section 409A regulate reimbursements? The concern is that an employee and employer will collude to achieve reimbursement of extravagant personal expenses many years after the expense is incurred. This “late” reimbursement would have the effect of unreasonably deferring taxation of the reimbursable expense, potentially into a year that is tax-advantageous for the employee.

The IRS’s solution? Ensure that expenses eligible for reimbursement are objectively determinable and reimbursed within a limited period of time following the date in which the expense is incurred. Here’s a list of the IRS’s

Five Common 409A Design Errors: #1 Employment Claims Releases

Five Common 409A Design Errors: #1 Employment Claims Releases

February 15, 2012

Authored by: benefitsbclp

Over the next several weeks, we will be writing about five common Code Section 409A design errors and corrections.  This is the first of those posts.

You are designing an executive employment agreement with a substantial severance component. For the amount of severance, it seems fair to condition payment upon execution of an agreement waiving all employment claims (ADA, age discrimination, etc.). Why not just say that severance payments don’t begin until the executive returns the claims release? The answer – Code Section 409A.

Incredulous? Here’s the concern. An employee who will begin to receive severance upon return of a release could potentially hold on to the release until the year following his or her termination. What does that achieve? Because the severance is taxable when actually paid, the employee could hold on to a release, defer taxation, and ultimately pay fewer taxes on the severance. Employee discretion as to

Will Presumption of Prudence Withstand DOL Challenge?

Will Presumption of Prudence Withstand DOL Challenge?

February 6, 2012

Authored by: benefitsbclp

The DOL recently filed an amicus brief in two companion “stock drop” cases on appeal to the Second Circuit Court of Appeals. In re Citigroup ERISA Litigation, 2d Cir., No. 09-3804-cv,. The DOL’s amicus brief urges the Second Circuit to reject the “presumption of prudence” first adopted in Moench v. Robertson, 62 F.3d 553 (3d Cir. 1995).

In Moench, the Third Circuit ruled that an ESOP fiduciary who invests plan assets in employer securities is entitled to a “presumption” that it acted consistently with ERISA in making that decision. A challenging party may rebut that presumption, however, “by establishing that the fiduciary abused its discretion by investing in employer securities.” Id.

Over the years, Moench has been adopted by a majority of the circuits that have addressed the issue, and its presumption has been applied not only to ESOPs but also to eligible individual account plans holding employer securities,

The Final Rule for 408(b)(2) – Fee Disclosures

Yesterday, the Department of Labor (“DOL”) issued the final rule on the disclosures that a covered service provider must furnish to a plan fiduciary in order for a contract or arrangement for services for a covered plan to be “reasonable” as required under ERISA §408(b)(2).  These fee disclosure requirements become effective July 1, 2012 and apply not only to service contracts and arrangements entered into on or after that date but existing contracts and arrangements entered into prior to July 1, 2012.

For those of you who remember in detail the disclosure requirements under the interim rules issued in July, 2010, the DOL has posted an overview of the changes from the interim final rule its website.  For everyone else, the disclosure requirements under the final rule are briefly described below.

Covered Plans

The final rule generally applies to ERISA-covered defined benefit and defined contribution pension plans. 

Treasury Department Offers Proposed Lifetime Income Guidance

Treasury Department Offers Proposed Lifetime Income Guidance

February 2, 2012

Authored by: benefitsbclp

Today, the Treasury and Internal Revenue Service (IRS) released proposed regulations along with a series of rulings intended to reduce regulatory barriers and increase the employer’s ease in offering lifetime income choices (i.e., annuities) to retirees to help them avoid outliving their retirement savings.  As described in the “fact sheet” issued by the Treasury, these proposed regulations aim to offer workers more accessible options as to how they receive their retirement benefits, including:

  • a combination retirement benefit option, which would allow an individual to take a portion of their income as a lifetime annuity while taking the remainder in another form (e.g., a lump-sum);
  • a “longevity annuity” option, which would allow employees to use a portion of their account balance (the lesser of 25% or $100,000) to provide a life annuity that would not begin until the retiree had reached age 80 or 85, to protect those

“Retire” Doesn’t Mean “Rehire”

“Retire” Doesn’t Mean “Rehire”

January 23, 2012

Authored by: benefitsbclp

In Private Letter Ruling 201147038, the Internal Revenue Service addressed an issue that surfaces frequently when an employer offers a voluntary retirement program. An employee may want to take advantage of the incentives offered under the program, but he or she may also want to continue working for the employer, and the employer may want the employee to continue working.

In this ruling, a plan proposed a funding rehabilitation plan which included eliminating unreduced early retirement benefits for participants with 20 or more years of service. Once the rehabilitation plan was effective, a participant would no longer be able to retire after 20 years of service with an unreduced benefit. The taxpayer proposed giving participants advance notice of the elimination of this right, along with the ability of affected participants to elect to retire during the notice period and then immediately return to employment. Upon reemployment, their pension benefits

E.D. of Michigan Retirees Must Arbitrate Claim for Medical Benefits, Despite Anti-Arbitration Provision in CBA

January 13, 2012

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An Eastern District of Michigan court recently ruled that retired union members must arbitrate their claims seeking a lifetime of fully-paid retiree medical benefits under a CBA (UAW v. Kelsey-Hayes Co., E.D. Mich., No. 2:11-cv-14434-JAC-RSW, 12/22/11).

Prior to the plaintiffs’ retirement in the late 1990s, their collective bargaining unit and their employer entered into a CBA which required that the employer would pay the full cost of medical coverage for eligible retirees and their spouses. However, in September 2011, the employer’s successor announced that, effective January 1, 2012, it would discontinue its current healthcare plan for Medicare-eligible retirees and surviving spouses.

The union, on behalf of the retirees, filed this lawsuit alleging that they were entitled to a lifetime of fully-paid medical benefits and that the defendant employers’ conduct breached the terms of the parties’ CBA as well as their fiduciary duties under ERISA. In response, the defendants filed a

Alert: New Form 8955-SSA Deadline Fast Approaching

Alert: New Form 8955-SSA Deadline Fast Approaching

January 13, 2012

Authored by: benefitsbclp

 New IRS Form 8955-SSA, the Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits, replaces the Schedule SSA of the Form 5500 annual report. Form SSA, will generally due at the same time as Form 5500 (i.e., the last day of the seventh month after the plan year ends); however, the IRS has extended the due date for Form 8955-SSA for the 2009 and 2010 plan years to January 17, 2012 or the generally applicable due date for 2010, whichever is later. No further extensions will be available for the January 17, 2012 deadline, so employers should make sure to get their filings done by next Tuesday!

 

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