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IRS Announces Cost-of-Living Adjustments Applicable to Defined Contribution Plans and Defined Benefit Plans
The IRS announced cost-of-living adjustments applicable to the 2012 tax year that impact defined contribution and defined benefit plan limits. The limitation on elective deferrals was increased from $16,500 to $17,000. However, the limitation for catch-up contributions by participants who are age 50 or older remains at $5,500. The Code Section 415 limit applicable to defined contribution plans increased from $49,000 to $50,000, and the annual compensation limit under Code Section 401(a)(17) increased from $245,000 to $250,000. The limitations used to determine key employees was increased from $160,000 to $165,000, and the highly compensated employee limit was increased from $110,000 to $115,000. The annual benefit limit for defined benefit plans was increased from $195,000 to $200,000. Information on these (and other adjustments) can be found here.
Department of Labor Withdrawing Proposed Fiduciary Rule
The Department of Labor has announced that it intends to withdraw its controversial proposed changes to the definition of “fiduciary” under ERISA. The DOL expects to have a new proposal in 2012.
Seventh Circuit Denies Breach of Fiduciary Duty Claim Against Plan Offering Retail Funds
In keeping with its previous decision in Hecker v Deere & Co., 556 F.3d 575 (7th Cir. 2009) and a recent Third Circuit decision, the U.S. Court of Appeals for the Seventh Circuit held that the plan administrator did not violate its fiduciary duty by allowing the plan to offer retail-share class mutual funds instead of investor-share class mutual funds. The court considered that there was a sufficient mix of funds, and that the retail funds that were offered each had an expense ratio between 0.03 percent and 0.96 percent, which is less than the 1.09 percent average expense ratio for institutional-share classes in 2009. The court also considered that participants were educated regarding the various investment funds risk and return characteristics and operating expenses. Finally, the court noted that participants would benefit from increased liquidity in retail funds rather than the potentially lower cost of institutional funds. The court… Continue Reading
Seventh Circuit Rules that Benefit Denial Did Not Comply with ERISA Notice Requirements
The Seventh Circuit ruled that a pension plan’s denial of disability retirement benefits failed to comply with the notice requirements of ERISA. The denial letter merely asserted that the plaintiff was not permanently disabled, and failed to (i) provide the specific reason for the adverse determination, (ii) reference the specific plan provision on which it was based, (iii) provide a description of any additional material required, (iv) provide reference to the criteria relied upon in making the adverse decision, and (v) include a statement of the plaintiff’s right to bring a civil action. Due to this failure to comply with ERISA’s notice requirements, the court remanded the case back to the plan to determine, de novo, whether the plaintiff was entitled to disability benefits. The case illustrates the importance of carefully following ERISA’s procedures in drafting claim denial letters. Kough v. Teamsters’ Local 301 Pension Plan, No. 1:06-cv-05235 (7th Cir.… Continue Reading
Seventh Circuit Requires Arbitration in Withdrawal Fee Assessment Dispute
The U.S. Court of Appeals for the Seventh Circuit reinforced ERISA’s requirement that employers must pursue arbitration to completion, if they want to challenge an assessment of withdrawal liability. The court ruled that an employer was required to continue to arbitrate with a multiemployer pension fund its dispute regarding an increase in withdrawal liability, even though a district court previously ruled that the employer was not required to pay the higher amount of liability while awaiting completion of arbitration. The court found that regardless of earlier court rulings, an employer must exhaust the arbitration process before it can ignore a fund’s reassessment demands for increased withdrawal liability payments. National Shopmen Pension Fund v. DISA Industries, Inc., No. 10-1827 (7th Cir. Aug. 8, 2011).
Plan Required to Pay Interest on Unreasonably Delayed Lump Sum Payment
The Court of Appeals for the D.C. Circuit recently held that a 45 day delay to participants who elected to receive a lump-sum as opposed to an annuity was unreasonable and that the participants should be awarded interest on the 45 day delay. The plaintiffs in the case were retired U.S. Airways pilots who elected to receive their pension from the U.S. Airways Pension Plan (the “Plan”) in a single lump sum rather than as an annuity. The Plan paid those lump sum payments 45 days later than if the plaintiffs elected the annuity option. The Plaintiffs claimed the Plan violated the requirement in ERISA Section 204(c)(3) that lump sums paid in lieu of an annuity be the actuarial equivalent of the annuity payment and that the Plan accordingly owed them interest for the 45 day delay. The Pension Benefit Guaranty Corporation (“PBGC”) was the trustee of the Plan due to the U.S. Airways… Continue Reading
Repudiation is Insufficient to Excuse Failure to Exhaust Remedies Under the Plan
The defined benefit pension plan contained a provision that salaried employees who “involuntarily terminated” within three years of a change in control would receive an additional five years of credited service and five years of age for purposes of determining pension benefits. The company underwent a change in control in 2008. In 2009, it sold off a subsidiary. At that time, it sent an FAQ to subsidiary employees telling them that they would not be eligible for the additional age and service credit at the time of the sale or when they terminated employment with the subsidiary. The U.S. Court of Appeals for the Eighth Circuit upheld the district court’s dismissal for failure to exhaust administrative remedies under the plan. While exhaustion is excused if pursuing the administrative remedy would be futile, futility requires a showing of certainty that the claim would be denied on appeal, not merely doubts that… Continue Reading
Fifth Circuit Rules that Plan Administrators Must Accept QDROs Even if Suspected to be Based on a Sham Divorce
The Fifth Circuit ruled that a retirement plan administrator may not refuse to treat a domestic relations order (DRO) as a qualified domestic relations order (QDRO) under ERISA on the basis that the administrator believes the DRO was not obtained in good faith from the court that issued it. In this case, Continental Airlines alleged that several pilots and their spouses obtained “sham” divorces for purposes of obtaining lump sum pension distributions from the Continental Pilots Retirement Plan, which they otherwise could not have received without the pilots separating from service. In rejecting Continental’s claim for restitution, the Fifth Circuit held that the plan administrator may only review DROs based on whether the statutory criteria were met and not on any other criteria, such as whether the divorce was obtained in good faith. Plan administrators should review their QDRO procedures to ensure that only the statutory criteria are considered in… Continue Reading
Effective Dates of Retirement Plan Fee Disclosures Extended Again
Last year, the Department of Labor (DOL) issued an interim final rule regarding fee disclosures from pension plan service providers to fiduciaries and a final rule regarding fee disclosures from plan administrators to participants. The DOL previously extended the effective date of the fiduciary-level disclosure rule until January 1, 2012, intending to align its applicability date with the participant-level fee disclosure rule, which is applicable for plan years beginning on or after November 1, 2011. The DOL has again extended the effective date of the fiduciary-level disclosure rule from January 1, 2012 to April 1, 2012. In addition, the transition period for the participant-level disclosure rule has been extended. Now, initial disclosures must be made no later than the later of 60 days after the first day of the first plan year beginning after November 1, 2011, or 60 days after the effective date of the fiduciary-level disclosure rule. For… Continue Reading
Fifth Circuit Rules that Plan Administrators Must Accept QDROs Even if Suspected to be Based on a Sham Divorce
The Fifth Circuit ruled that a retirement plan administrator may not refuse to treat a domestic relations order (DRO) as a qualified domestic relations order (QDRO) under ERISA on the basis that the administrator believes the DRO was not obtained in good faith from the court that issued it. In this case, Continental Airlines alleged that several pilots and their spouses obtained “sham” divorces for purposes of obtaining lump sum pension distributions from the Continental Pilots Retirement Plan, which they otherwise could not have received without the pilots separating from service. In rejecting Continental’s claim for restitution, the Fifth Circuit held that the plan administrator may only review DROs based on whether the statutory criteria were met and not on any other criteria, such as whether the divorce was obtained in good faith. In light of this decision, plan administrators should review their QDRO procedures to ensure that only the statutory criteria are considered… Continue Reading
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