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UPDATED – DoL Electronic Delivery Guidance: The Good, the Bad, and the Not so Bad

UPDATE – The Department of Labor (“DoL”) has updated its previous guidance on electronic disclosures to clarify that investment-related information, including the required comparative chart, may be provided through a secure, continuous-access website, subject to the other requirements in the guidance, as described in our updated post below.   The ability to use a secure continuous-access website for these purposes was unclear in the prior guidance.

In September, the DoL released interim guidance on electronic delivery of certain participant fee disclosures which was recently updated. Remember that account balance plans (like 401(k) plans) that allow participant direction of investments have to provide new participant-level fee disclosures beginning in April-May of 2012. Some disclosures can be included in quarterly benefit statements, like the amount and description of administrative and individual fees charged to a participant’s or beneficiary’s account. Other disclosures are required before a participant or beneficiary can first direct his or her investments or at other times and these generally cannot be included in quarterly benefit statements (either for legal or practical reasons).

When the DoL issued these final fee disclosure regulations last year, it intentionally did not address how the information would be furnished. However, given that the compliance deadline is forthcoming, the DoL issued Technical Release 2011-03 that addresses how these disclosures can be provided in an electronic form until more permanent guidance can be issued.  Plan sponsors and administrators can choose either to follow this new guidance or use

‘Tis the Season to Double-Check for 409A Compliance

‘Tis the Season to Double-Check for 409A Compliance

December 13, 2011

Authored by: benefitsbclp

‘TIS THE SEASON to check executive deferred compensation practices for operational compliance with section 409A of the Internal Revenue Code and the specific terms of company plans and employment agreements.

Common operational errors include deferring too much or too little and making distributions too large, too small, too early or too late.

Even a minor operational error can cause trouble unless it is corrected promptly. Some types of operational errors discovered in the year of the error or one of the next two years can be corrected without ruinous results under IRS procedures. This makes it appropriate to review your 2011 deferral and distribution records to make sure everything is just right or to identify issues and make prompt corrections. If you did not review your records for 2009 or 2010, that also would be worth doing now. Although the corrections approved by the IRS are more difficult and more costly for errors that occurred in the two prior years, making an approved correction is still far better than the onerous taxes imposed on the affected employee if no correction is made.

The correction procedures are described at length in IRS Notice 2008-113. Please call us if we can be of assistance.

Are Unpaid Employer Contributions Considered Plan Assets?

Are Unpaid Employer Contributions Considered Plan Assets?

December 8, 2011

Authored by: benefitsbclp

Department of Labor regulations provide that deductions for an employee’s wages are assets of an ERISA fund as soon as these amounts can be segregated from the employer’s general assets. While no similar regulations exist regarding unpaid employer contributions, a recent district court case concluded that case law has developed the following general rule in the context of a multiemployer plan: “unpaid employer contributions are not assets of a fund unless the agreement between the fund and the employer specifically and clearly declares otherwise.” West Virginia Laborers’ Pension Trust Fund v. Owens Pipeline Service LLC, S.D.W.Va., No. 2:10-cv-00131, Nov. 18, 2011 (citing ITPE Pension Fund v. Hall, 334 F.3d 1011, 1013 (11th Cir. 2003)).

In the Owens case, the defendant, the company president and sole shareholder of the corporation, decided to make payments on a piece of equipment instead of making contributions to four multiemployer pension plans. Four pension trust funds sued claiming he was a fiduciary and personally liable for the missed contributions, which the funds argued were plan assets. The pension trust agreement stated that contributions “due and owing” to the fund were considered to be plan assets. While the defendant argued otherwise, the judge found the “due and owing” language mirrored several similar district court decisions in which the unpaid contributions were deemed to be plan assets. The judge held the agreement clearly provided “that once the various contributions were ‘due’ to the funds based upon the number of hours worked by union

Have You Inadvertently Amended Your Benefit Plans in an Acquisition?

Have You Inadvertently Amended Your Benefit Plans in an Acquisition?

November 29, 2011

Authored by: benefitsbclp

Has your company recently acquired another company or its assets? Did the purchase agreement require continuation of any particular level of benefit for acquired employees or retirees? If so, the Fifth Circuit appears to believe that the purchase agreement may have amended your company’s employee benefit plans to provide those benefits described in the purchase agreement. What does this mean? That acquired employees and retirees can potentially sue your company for benefits described in a contract to which the employees and retirees were neither a party nor a third party beneficiary.

Evans v. Sterling, 2011 WL 4837847 (5th Cir. 2011).

In December of 1996, Sterling Chemicals acquired American Cyanamid’s (“Cytec”) acrylic fibers business in an asset purchase transaction. In connection with the acquisition, Sterling offered employment to certain Cytec employees. The asset purchase agreement included a provision requiring Sterling to provide certain levels of retiree medical coverage for the acquired Cytec employees unless Cytec agreed to changes. Sterling provided these retiree benefits to Cytec employees under its own retiree plans following consummation of the acquisition.

A few years following its acquisition of the Cytec business, Sterling increased retiree medical premiums for the acquired Cytec employees. The acquired Cytec employees sued, and the Fifth Circuit held that Sterling could not increase retiree premiums for the acquired Cytec employees without Cytec’s consent.

The court reasoned that the asset purchase agreement between Sterling and Cytec amended Sterling’s existing retiree medical programs. Following earlier precedent in Halliburton Co. Benefits Committee v. Graves,

New EBSA Consumer Assistance Website

New EBSA Consumer Assistance Website

November 23, 2011

Authored by: benefitsbclp

The Department of Labor’s Employee Benefit Security Administration (EBSA) is making it easier for consumers to submit questions and complaints regarding their health and retirement plans. EBSA has created a new consumer assistance website which allows users to submit inquiries electronically.  If you hablo Espanol, it’s also available in Spanish.

The DOL claims the new website provides easy access to useful information through links for resources/tools, hot topics, and publications. It also provides links to electronic forms where a user may “Ask a Question”, “Submit a Complaint”, or “Report a Problem.” EBSA seems to be serious about wanting to hear from consumers and give them assistance by promising to respond to all inquiries within three business days.

What does this mean for employers? The increased ease in which employees can submit complaints regarding their health and retirement plans to the DOL may lead in increased government scrutiny. Employers should now, more than ever, make it a point to respond to employee inquires quickly and adequately. If an employee is not satisfied with their employer’s response, they now have a quick means to complain to the government. Employers should also be sure to thoroughly document their responses to employee questions and complaints, including the rationale, just in case the DOL comes knocking.

Can I Deduct a Bonus for Tax Purposes if I Don’t Know Who Will Get it?

The IRS recently released Revenue Ruling 2011-29 clarifying the deductibility of bonuses. The question posed in the Ruling was:

“Can I deduct a bonus in the current tax year if I know how much I will pay in bonuses by the end of the year, even if I don’t know who will get them until next year?”

The Facts: The more detailed facts are as follows:

A company (we’ll call it “X” to protect the innocent) uses an accrual method of accounting for federal tax purposes. X pays bonuses to a group of employees pursuant to a program that defines the terms and conditions under which the bonuses are paid for a taxable year. X communicates the general terms of the bonus program to employees when they become eligible and whenever the program is changed.

Under the program, bonuses are paid to X’s employees for services performed during the taxable year. The minimum aggregate amount of bonuses payable under the program to X’s employees as a group is determinable either (a) through a formula that is fixed prior to the end of the year, taking into account financial results as of the end of that year, or (b) through other corporate action, such as a resolution of X’s Board or Compensation Committee, made before the end of the taxable year, that fixes the total bonuses payable to the employees as a group. To be eligible for a bonus, an employee must perform services during the taxable year and be employed

If It Isn’t Written Down, It Didn’t Happen

If It Isn’t Written Down, It Didn’t Happen

November 8, 2011

Authored by: benefitsbclp

 

We’ve all heard the old adage, advising us to record our thoughts and actions, lest they become lost to obscurity. In EP Quality Assurance Bulletin 2012-1, released November 2, the IRS reminds us of the importance of documentation with regard to the qualified plans in our lives. The Bulletin, entitled “Verification of Prior Plan Documents in the Absence of a Determination Letter,” provides IRS determination letter specialists with updated guidance on verification that retirement plans have been timely amended for prior legislation.

If you are filing your plan during the second remedial amendment cycle and you already have a d-letter covering the first cycle, you need to include all good-faith and interim amendments adopted after your first cycle submission.  In addition, you should include any discretionary amendments adopted since the issue date of the d-letter. However, if you are filing for a plan that does not yet have a d-letter, all amendments going back to the beginning of the EGTRRA amendment cycle should be included in your submission.

If a specialist determines that verification of compliance with additional laws beyond the cycles described above is warranted, he or she may expand the inquiry with managerial approval. This is where it could get tricky for plan sponsors. What if plan documentation cannot be produced? In the Bulletin, the IRS provides that if pre-GUST documentation is necessary (but the plan documents are missing), specialists should secure other evidence from the employer, including a prior d-letter, board

Compliance with ERISA Fee Disclosure Rules Considered Consistent with SEC Mutual Fund Advertising Rules

The Securities and Exchange Commission (“SEC”) issued a “no action letter” on October 26, 2011 indicating that issuing disclosures compliant with the Department of Labor (“DOL”) participant fee disclosure rules will not be considered inconsistent with the SEC Rule 482 advertising requirements that apply to mutual funds.

Participant Fee Disclosure Rule – DOL Regulation Section 2550.404a-5 requires plan administrators of participant-directed individual account plans to disclose, among other things, plan and investment-related information. Initial disclosures are not required until 2012. The performance data required to be disclosed in the regulation must be presented in a chart or other comparative format. Generally, the chart must include the average annual total return of the fund for the one-, five, and ten-calendar year periods ending on the date of the most recently completed calendar year. The DOL regulation also requires certain other disclosures, but, with respect to a money market fund, does not require inclusion of the fund’s most recent yield.

SEC Rule 482 – This SEC rule requires advertisements and other sales materials for certain mutual funds to include, among other disclosures, uniformly calculated performance information. In general, the rule requires performance data to be current as of the most recent calendar quarter ending prior to the publication of the advertisement (or sooner if the advertisement is provided telephonically or through an Internet site). An advertisement for a money market fund must also include a quotation of the fund’s current yield.

Problem – Comments submitted in response to the

2012 Qualified Plan Limits – YAY!

2012 Qualified Plan Limits – YAY!

October 24, 2011

Authored by: benefitsbclp

 Last week, the IRS issued a press release announcing its 2012 cost-of-living adjustments for retirement plans. The chart below reflects the qualified plan limits for calendar years 2009-2012.

 

Type of Limitation

 

2012

 

2011 

 

2010

 

2009

         

Elective Deferrals (401(k) and 403(b); not including adjustments and catch-ups)

$17,000

$16,500

$16,500

$16,500 

457(b)(2) and 457(c)(1) Limits (not including catch-ups)

$17,000

$16,500

$16,500

$16,500

Section 414(v) Catch-Up Deferrals to 401(k), 403(b), 457(b), or SARSEP Plans (1)

$5,500

$5,500

$5,500 

$5,500 

SIMPLE 401(k) or regular SIMPLE plans, Catch-Up Deferrals

$2,500

$2,500

$2,500

$2,500 

415 limit for Defined Benefit Plans

$200,000

$195,000

$195,000 

$195,000 

415 limit for Defined Contribution Plans

$50,000

$49,000 

$49,000 

$49,000

Annual Compensation Limit

$250,000

$245,000

$245,000 

$245,000

Annual Compensation Limit for Grandfathered Participants in Governmental Plans Which Followed 401(a)(17) Limits (With Indexing) on July 1, 1993

 

$375,000

 

$360,000

 

$360,000

 

$360,000

Letters From Your Friends at the IRS About Your Form 5500

Letters From Your Friends at the IRS About Your Form 5500

October 20, 2011

Authored by: benefitsbclp

The IRS Employee Plans Compliance Unit recently announced that they would be sending letters to plan sponsors whose Form 5500 filings were six to nine months late. From our experience, these letters are usually sent because there was a simple error, such as transposed numbers in the employer’s EIN or failing to mark a final return filed in a prior year as the “Final Return/Report.” Most often, a corrected copy of the Form 5500 will suffice to make the IRS go away for this purpose. A failure to respond to a compliance check letter could result in an audit referral to the IRS’s Employee Plans Examinations or the Department of Labor (“DoL”).

If an employer discovers a simple error, such as those noted above, whether via a letter from the IRS or otherwise, we generally recommend that the employer file an amended return with the DoL processing center coupled with an explanation detailing the error being corrected. The IRS and DoL are not always able to coordinate as efficiently as we or they would like, so sending a revised return to the IRS does not necessarily mean that the DoL has received it. The employer could be contacted separately by the DoL for the same reason the IRS contacted them, even after the IRS has notice of the corrected filing. Admittedly, filing an amended return does not always alleviate this additional hassle, but it has the potential to head it off at the pass and it makes dealing

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