ERISA section 4042(a)(4) provides that the PBGC “may institute proceedings . . . to terminate a plan whenever it determines that the possible long-run loss of the corporation with respect to the plan may reasonably be expected to increase unreasonably if the plan is not terminated.” The PBGC investigates potential candidates for involuntary termination under its early warning program. The PBGC recently issued guidance listing examples of situations that would trigger such an investigation. Some examples relate to corporate transactions (e.g., transferring the plan to a weaker sponsor or controlled group following a controlled group breakup) whereas others relate to the financial deterioration of the plan sponsor (e.g., downgrading of a plan sponsor’s credit ratings or a downward trend in cash flow). View a full list of the early warning triggers.
In Notice 2016-80, the IRS published the first Required Amendments List, which lists statutory and administrative changes in plan qualification requirements that (i) are first effective in the plan year in which the list is published and (ii) may require a plan amendment. This year’s list included just one item, which related to restrictions on accelerated distributions from underfunded single-employer, collectively-bargained defined benefit plans due to an employer’s bankruptcy. The deadline for adopting any required amendments described in this year’s Required Amendments List is December 31, 2018. View Notice 2016- 80.
On December 2, the U.S. Supreme Court agreed to hear appeals in three ongoing lawsuits challenging the “church plan” status of the pension plans of Advocate Healthcare Network, Dignity Health, and St. Peter’s Healthcare System, which are religiously affiliated healthcare systems. In each of those cases, the lower courts held that the pension plans did not qualify as “church plans” because they were not established and maintained by a church or a convention or association of churches, but rather by a non-profit organization merely affiliated with a religious organization. Church plans are generally exempt from ERISA, including its fiduciary and minimum funding requirements. If the Supreme Court agrees with the lower courts’ rulings, the pension plans of the three healthcare systems, and potentially many other religiously affiliated employers, would have to comply with all of ERISA’s requirements. The Court’s order granting certiorari for the three cases is available here.
The following non-exhaustive list describes year-end action items and the annual notices for retirement plans that generally must be distributed within a reasonable time prior to the start of the plan year. For calendar year plans, providing the notices outlined below by December 1 will meet this requirement in most cases. Safe Harbor 401(k) Notice: For 401(k) plans that are designed to comply with the safe harbor requirements of the Internal Revenue Code. Automatic Enrollment Notice: For any plan that includes automatic enrollment provisions. Qualified Automatic Contribution Arrangement Notice: For plans that are designed to comply with the Internal Revenue Code’s qualified automatic contribution provisions. Eligible Automatic Contribution Arrangement Notice: For plans that are designed to comply with the Internal Revenue Code’s eligible automatic contribution provisions. Qualified Default Investment Alternative (“QDIA”) Notice: For plans with participant-directed investments that include a QDIA in which a participant’s account will be invested if… Continue Reading
The IRS recently announced cost-of-living adjustments for 2017. Below is a list of some of the key annual limits that will apply to qualified retirement plans in 2017: Compensation limit in calculating a participant’s benefit accruals: increased to $270,000. Elective deferrals to 401(k) and 403(b) plans: remains unchanged at $18,000. Annual additions to a defined contribution plan: increased to $54,000. Catch-up contributions for employees aged 50 and over to 401(k) and 403(b) plans: remains unchanged at $6,000. Annual benefit limit for a defined benefit plan: increased to $215,000. Compensation dollar limit for defining a “key employee” in a top heavy plan: increased to $175,000. Compensation dollar limit for defining a “highly compensated employee”: remains unchanged at $120,000. The full list of 2017 plan limits can be found in IRS Notice 2016-62.
On September 29, 2016, the IRS released Rev. Proc. 2016-51, which sets forth the comprehensive Employee Plans Compliance Resolution System (“EPCRS“) and supersedes Rev. Proc. 2013-12 (i.e., the most recent comprehensive statement of EPCRS). The modifications to EPCRS made by Rev. Proc. 2016-51 were primarily ministerial (e.g., making certain changes in response to modifications made to the IRS’s determination letter program). One noteworthy change, which will become effective January 1, 2017, is that the IRS will no longer refund 50% of the user fee in connection with anonymous voluntary correction program submissions for which an agreement cannot be reached. View Rev. Proc. 2016-51.
On Wednesday, September 21, the U.S. Supreme Court ordered a stay in the ongoing church plan litigation involving the pension plan of Dignity Health, a healthcare system affiliated with the Catholic Church. Earlier this year, the U.S. Court of Appeals for the Ninth Circuit held that Dignity Health’s pension plan did not qualify as a church plan because it was not established and maintained by a church or a convention or association of churches, but rather by a non-profit organization merely affiliated with a religious organization. Consequently, Dignity Health’s plan would no longer be exempt from ERISA. Dignity Health appealed the Ninth Circuit’s ruling to the U.S. Supreme Court, but the Court has yet to announce whether it will hear that appeal or the appeals filed in two other church plan cases involving the pension plans of Advocate Health Care Network and Saint Peter’s Health System. The Supreme Court’s order… Continue Reading
The PBGC issued a final rule implementing relief for penalties resulting from late payment of premiums. The final rule implements the changes reflected in the proposed rule published in April.Under the final rule, if the plan sponsor corrects the delinquency before being notified by the PBGC, the plan would be responsible for a monthly penalty of 0.5 percent of the late premium amount and, if the plan corrects the delinquency after being notified by the PBGC, it would be responsible for a monthly penalty premium of 2.5 percent. These penalties are reduced from 1 percent and 5 percent, respectively. In addition, if the sponsor has a good payment history and pays promptly after receiving the PBGC notice, the PBGC will waive 80 percent of the 2.5 percent penalty payment. Read the final rule.
PBGC Missing Participant Program to Include 401(k) Plans and Certain Other Plans That Terminate after 2017
The PBGC issued a proposed rule that would expand its existing missing participants program to cover terminated defined contribution plans, such as 401(k) and profit-sharing plans, as well as certain other plans not currently covered under the program, that voluntarily elect to participate. Under the program, for a low one-time fee, and following a diligent search, the terminating plan may transfer the account balances or accrued benefits of all missing participants to the PBGC. The PBGC will then maintain a centralized, online searchable directory of the missing participants and periodically search for the missing participants. In the proposed rule, the PBGC also modifies the criteria for a participant to be considered ”missing” and provides specific diligent search rules for plans to attempt to locate missing participants. Read the proposed rule.
IRS Issues Final Regulations to Facilitate Partial Lump-Sum Payments under Defined Benefit Pension Plans
Many defined benefit pension plans either do not offer lump-sum payments (other than small cash out amounts) or offer either a full lump-sum payment or an annuity form of payment. For those plans that offer an all-or-nothing lump-sum payment, the government believes participants who elect the lump sum may face a greater risk of outliving their retirement savings. The IRS has issued final regulations permitting a plan to explicitly split the accrued benefit into a portion payable as a lump sum and the balance payable in the form of an annuity without requiring the annuity portion to be subject to the Code Section 417(e) actuarial conversion requirements. The final regulations contain specific rules on the calculation of the two portions and include a number of examples that illustrate application of these rules. The final regulations are available here.