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11th Circuit Affirms that Unpaid Employer Contributions are Not Plan Assets Absent Clear Plan Language to the Contrary

ERISA?ÇÖs regulations expressly provide that employee contributions withheld from an employee?ÇÖs wages are ?Ç£plan assets?Ç¥ even if the employer never remits the contributions to its employee benefit plan.?á Yet, there is no corresponding provision relating to unpaid employer contributions.?á Courts generally hold that unpaid employer contributions are not plan assets unless clear language in the plan indicates otherwise, such as provisions indicating that employer contributions are plan assets when ?Ç£due?Ç¥ or ?Ç£owing.?Ç¥?á Nevertheless, the employer may still be liable to the benefit plan for the unpaid contributions under contract law depending upon how the plan provision is worded.?á The 11th Circuit recently reaffirmed this proposition in an unpublished case where a participant in the employer?ÇÖs 401(k) plan sued for breach of fiduciary duty because the employer used its employer contribution funds to pay its payroll taxes rather than remitting the funds to the 401(k) plan.?á The court held that there… Continue Reading

Hacienda Extends Deadlines to Comply with the Puerto Rico Internal Revenue Code of 2011

Hacienda extended the deadline for plans to be amended to comply with the Puerto Rico Internal Revenue Code of 2011. The original amendment deadline was the last day of the first plan year beginning on or after January 1, 2012. For calendar year plans, the deadline would have been December 31, 2012. The new deadline is the later of June 30, 2013, or the last day of the first plan year beginning on or after January 1, 2012. In addition, the deadline to submit a ?Ç£Request for Qualification?Ç¥ letter was extended to the later of September 30, 2013, or the due date to file an income tax return of the employer, with extensions, for the first taxable year that begins on or after January 1, 2012. Finally, the ?Ç£Request for Qualification?Ç¥ with regard to a plan?ÇÖs qualification under the Puerto Rico Internal Revenue Code of 1994 must be submitted with… Continue Reading

Department of Labor Proposes Rule to Speed Distributions to Participants of Plans Sponsored by Bankrupt Companies

The U.S. Department of Labor?ÇÖs Employee Benefits Security Administration announced a proposed rule that would expand its Abandoned Plan Program to include individual account plans, including 401(k) plans, of companies in Chapter 7 bankruptcy (a ?Ç£Chapter 7 Plan?Ç¥). Under the current rule, only large financial institutions and other asset custodians can serve as administrators of abandoned plans, and a plan is considered abandoned only after no contributions or distributions have been made for at least 12 months. Under the proposed rule, a Chapter 7 Plan would be considered abandoned on the date the plan sponsor?ÇÖs bankruptcy proceeding commences. A bankruptcy trustee, or its designee, could then take advantage of the Abandoned Plan Program?ÇÖs streamlined plan termination and benefit distribution procedures. As a result, plan participants would likely see fewer administrative and termination fees charged to their accounts and could receive benefit distributions more quickly. Additionally, the proposed rule permits a… Continue Reading

IRS Eliminating Form 5500 Proposed Penalty Notices

The IRS announced on December 7 that it is eliminating proposed penalty notices relating to Form 5500 filings in an effort to reduce processing costs, eliminate notices, and comply with notice and system standards. The IRS will no longer send the following notices: CP 213N: Proposed Penalty Notice for Late Filing of Form 5500, Annual Return/Report of Employee Benefit Plan; and CP 213I: Proposed Penalty Notice for Incomplete Filing of Form 5500. The IRS will continue to send notice CP 283: Penalty Charged on Your 5500 Return, if a Form 5500 is filed late or is incomplete. The IRS announcement is here.

IRS Issues 2012 List of Changes in Plan Qualification Requirements

The IRS released Notice 2012-76, which contains the 2012 Cumulative List of Changes in Plan Qualification Requirements to be used by plan sponsors and practitioners filing determination letter applications beginning February 1, 2013. Those using the 2012 cumulative list will primarily be single employer, individually designed defined contribution and defined benefit plans in Cycle C of the IRS?ÇÖs 5-year remedial amendment cycle program and ?º 414(d) governmental plans. An individually designed plan is generally in Cycle C if the last digit of the plan sponsor?ÇÖs EIN is 3 or 8. To retain its qualified tax status, a plan must be amended to comply with all statutory, regulatory, or guidance changes in tax-qualification requirements. In reviewing determination letter applications beginning February 1, 2013, the IRS will generally not look for plan amendments related to guidance issued after October 1, 2012; statutes enacted after October 1, 2012; qualification requirements that become effective… Continue Reading

IRS Releases Final Regulations on the Comparable Effectiveness Fee

The U.S. Internal Revenue Service (?Ç£IRS?Ç¥) recently released final regulations regarding the ?Ç£comparable effectiveness fee?Ç¥ applicable to certain health insurers and to plan sponsors of self-insured health plans under the Patient Protection and Affordable Care Act (?Ç£PPACA?Ç¥). The comparable effectiveness fee will assist with financing the Patient-Centered Outcomes Research Institute (the ?Ç£Institute?Ç¥) which was established under PPACA to fund research of the clinical effectiveness of medical treatments, procedures and drugs. PPACA imposes the comparable effectiveness fee on an applicable issuer or plan sponsor for each plan or policy year ending on or after October 1, 2012, and before October 1, 2019, to support the Institute. The fee is $2.00 multiplied by the average number of lives covered under the plan or policy. (For plan or policy years ending before October 1, 2013, the fee is $1.00 multiplied by the average number of lives covered under the plan or policy.) The… Continue Reading

Using a Roth Conversion to Minimize Future Income Tax Exposure

With the increase in Medicare taxes that goes into effect in 2013 and the high likelihood of increased tax rates in one form or another as a result of the ?Ç£fiscal cliff?Ç¥ negotiations, individuals may want to consider accelerating income into 2012 to avoid additional income tax exposure in 2013 and beyond.?á One way to accomplish this is through the conversion of funds in the individual?ÇÖs traditional individual retirement account (IRA) to a Roth IRA.?á A Roth conversion may also be transacted within an employer-sponsored 401(k) retirement plan, if the plan?ÇÖs terms permit it.?á Under this ?Ç£in-plan Roth rollover,?Ç¥ a plan participant can transfer all or part of his vested non-Roth account to a designated Roth account within the same plan.?á The amount converted is subject to federal income taxation in the year of conversion (except for any non-taxable basis in the converted amount), and, therefore, the participant must have… Continue Reading

Reinsurance Program Contribution Estimated to be $5.25/month per Covered Life

The Affordable Care Act establishes a transitional reinsurance program for 2014, 2015 and 2016 that requires health insurance issuers and self-funded group health plans to pay a reinsurance contribution based on the number of covered lives in the group health plan.?á In recent proposed rules, the Department of Health and Human Services (?Ç£HHS?Ç¥) estimated that there would be a per capita contribution rate of $5.25 per month for 2014.?á The proposed rules provide that the issuer or plan must submit to HHS the average number of covered lives under the plan for 2014 by November 15, 2014.?á HHS would then notify the plan of the actual amount of reinsurance contribution owed by the plan, and the plan would have 30 days to pay such contribution.?á The proposed rule can be found?áhere.

Case Reminds Plan Sponsors to Check Plans for Discretionary Language

Most employer-sponsored group health plans are subject to ERISA.?á Under ERISA, courts will review a denial of a participant?ÇÖs benefits claim ?Ç£de novo?Ç¥ (meaning without deference to the plan administrator?ÇÖs prior decision) unless a plan document gives the plan administrator discretionary authority to interpret the terms of the plan.?á If the plan administrator has this discretion, a court will review the plan administrator?ÇÖs decision under the ?Ç£arbitrary and capricious?Ç¥ standard, and the court will uphold the plan administrator?ÇÖs decision if it is rational in light of the plan?ÇÖs provisions.?á In this case, a ?Ç£wrap plan?Ç¥ granted the plan administrator discretion to interpret the employer?ÇÖs health and welfare benefits plan for employees.?á This was important because the certificate of coverage for the accidental death and dismemberment benefit did not contain such language.?á Although the language was also contained in the summary plan description (?Ç£SPD?Ç¥), the court noted that the recent U.S.… Continue Reading

PBGC to Lessen Enforcement of Requirements for ?Ç£Creditworthy Companies?Ç¥ and ?Ç£Small Plans?Ç¥

The Pension Benefit Guaranty Corporation (?Ç£PBGC?Ç¥) recently announced that it is modifying enforcement of the financial security requirement if a company has a plant shutdown that results in job losses by more than 20 percent of the employees participating in the defined benefit plan.?á Going forward, the PBGC will analyze whether a company remains creditworthy.?á If the PBGC determines the company remains financially sound, or if the plan has less than 100 participants, the company will still have to notify the PBGC of the ERISA section 4062(e) event, but the PBGC will not enforce the financial guarantee requirement.?á The PBGC?ÇÖs FAQ can be found here.

December 2012