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Second Circuit Determines Xerox Plan Offset is Unreasonable, Overturns District Court

In the continuing saga of the Xerox floor-offset retirement plan, the U.S. Court of Appeals for the Second Circuit overturned the district court and held, under the abuse of discretion standard, that although the plan gave the plan administrator discretion to interpret the plan, the administrator abused its discretion by using an unreasonable method to calculate plan benefit offsets.?á The appellate court held that the method used to offset benefits was both contrary to the plain terms of the plan and was not clearly explained in the plan?ÇÖs summary plan description, resulting in the administrator?ÇÖs interpretation violating the notice requirements of the Employee Retirement Income Security Act of 1974, as amended.?á Frommert v. Conkright, No. 12-67-cv (2d Cir. Dec. 23, 2013).

IRS Issues 2013 List of Changes in Plan Qualification Requirements

The IRS released Notice 2013-84, which contains the 2013 Cumulative List of Changes in Plan Qualification Requirements to be used by plan sponsors and practitioners filing determination letter applications beginning February 1, 2014. ?áThose using the 2013 cumulative list will primarily be single employer, individually designed defined contribution and defined benefit plans in Cycle D of the IRS?ÇÖs 5-year remedial amendment cycle program and Section 414(f) multiemployer plans.?á An individually designed plan is generally in Cycle D if the last digit of the plan sponsor?ÇÖs EIN is 4 or 9.?á Notice 2013-84 can be found here.

IRS Issues Guidance on In-Plan Roth Rollovers

The IRS recently released Notice 2013-74, which provides guidance related to in-plan Roth rollovers of amounts not otherwise distributable under a retirement plan.?á Notice 2013-74 supplements Notice 2010-84, which provided guidance for in-plan Roth rollovers when the amount was distributable under the plan.?á Plans that elect to permit such in-plan Roth rollovers may, subject to nondiscrimination requirements, choose the types of contributions eligible for an in-plan Roth rollover, including elective deferrals in 401(k) and 403(b) plans, matching contributions, and non-elective contributions. However, such amounts remain subject to the same distribution restrictions that applied before the in-plan rollover.?á Plans wishing to adopt a discretionary amendment permitting such in-plan Roth rollovers have until the later of (i) the last day of the first plan year in which the amendment is effective or (ii) December 31, 2014, so long as the amendment is effective as of the date the plan first operates in… Continue Reading

First Circuit Holds that Retroactively Awarded Benefit is Subject to ERISA Anti-Cutback Rules

Four union pension plans had different methods for using ?Ç£banked hours?Ç¥ (i.e., hours worked which were in excess of those required to earn a full year of benefit service under the plan) to provide additional years of benefit service.?á When the plans merged, they were amended to use the same method for all four plans, resulting in a number of participants receiving retroactively increased benefits immediately after the merger.?á A number of years later, the union decided to rescind the retroactively increased benefits, claiming the anti-cutback rule of the Employee Retirement Income Security Act of 1974, as amended (?Ç£ERISA?Ç¥), did not apply to the gratuitous benefits increases attributable to prior banked hours. The U.S. Court of Appeals for the First Circuit upheld the federal district court?ÇÖs ruling that, for purposes of ERISA, the additional pension benefits granted retroactively became accrued benefits for purposes of ERISA and were therefore protected under… Continue Reading

IRS Issues Temporary Relief from Nondiscrimination Requirements for Closed Defined Benefit Plans

IRS Notice 2014-5 provides temporary nondiscrimination relief for certain defined benefit pension plans that have been ?Ç£frozen?Ç¥ to new entrants (e.g., a defined benefit plan that provides ongoing accruals for employees who were hired before a specified date).?á The notice permits certain employers that sponsor a ?Ç£closed?Ç¥ defined benefit plan and an ongoing defined contribution plan to demonstrate that the aggregated plans comply with the nondiscrimination requirements of Section 401(a)(4) of the Internal Revenue Code of 1986, as amended (the ?Ç£Code?Ç¥), on the basis of equivalent benefits, even if the aggregated plans do not satisfy the current conditions for testing on that basis.?á The notice also requests comments on possible permanent changes to the nondiscrimination rules under Section 401(a)(4).?á?á Notice 2014-5 can be found?áhere.

IRS Issues Final Regulations, Updated Proposed Regulations, and Updated FAQs Addressing the Net Investment Income Tax

The Net Investment Income Tax (?Ç£NIIT?Ç¥) is an additional 3.8% tax that went into effect on January 1, 2013, on certain net investment income of individuals, estates, and trusts that have modified adjusted gross income (?Ç£MAGI?Ç¥) above certain statutory threshold amounts (e.g., $250,000 for married taxpayers filing jointly, $200,000 for single taxpayers).?á Net investment income includes, but is not limited to, interest, dividends, capital gains, rental and royalty income, and non-qualified annuities.?á Net investment income does not include wages, unemployment compensation, Social Security Benefits, tax-exempt interest, self-employment income, or distributions from qualified plans described in Code Sections 401(a), 403(a), 403(b), 408, 408A, or 457(b), including Section 404(k) dividends distributed under an employee stock ownership plan.?á Generally, an affected taxpayer owes NIIT on the lesser of the taxpayer?ÇÖs net investment income or the amount by which the taxpayer?ÇÖs MAGI exceeds the threshold.?á The final regulations can be found here.

Federal Court Grants Country Club?ÇÖs Motion for Summary Judgment Denying Additional Top-Hat Plan Benefits for Ex-General Manager

The general manager of a country club resigned from employment and then sued the country club for mishandling and commingling benefits under a ?Ç£deferred compensation plan?Ç¥ and an ?Ç£employment agreement plan.?Ç¥?á The court determined that both plans were top-hat plans under the Employee Retirement Income Security Act of 1974, as amended (?Ç£ERISA?Ç¥), because they were unfunded and provided deferred compensation for ?Ç£a select group of management or highly compensated employees.?Ç¥?á The court then reviewed the benefit determinations under a de novo standard because the Firestone deferential standard of review does not apply to top-hat plans.?á The court summarily disposed of the ERISA fiduciary claims because top-hat plans are exempt from ERISA?ÇÖs fiduciary standards.?á The claims that the country club interfered with the employee?ÇÖs ERISA rights were denied because there was no evidence of constructive discharge.?á The recovery of benefits claims were upheld but limited under a factual analysis.?á Finally, the… Continue Reading

Employer with Discretion to Reduce or Eliminate Bonuses Prior to Payment Not Entitled to Deduction in Year Bonuses Accrued, Rather Than in Year Paid

In Field Attorney Advice Memorandum 20134301F, the IRS determined that an employer was not entitled to deduct bonus compensation in the year it was earned, rather than in the year it was paid, because the corresponding bonus plan documents gave the employer unilateral discretion to reduce or eliminate bonus amounts at any time before they were paid. Under the ?Ç£all events test,?Ç¥ an employer generally may deduct bonus compensation in the year it is earned, rather than in the year it is paid, if (i) all events have occurred by the end of the year to which the bonus relates that establish both the fact and amount of liability and (ii) the bonus is paid within 2???ámonths after the end of such year. The IRS reasoned that the discretion to reduce or eliminate bonus amounts at any time prior to payment prevents the ?Ç£fact of liability?Ç¥ and the ?Ç£amount of… Continue Reading

IRS Publishes Final Regulations on Additional Medicare Tax

The Internal Revenue Service (the ?Ç£IRS?Ç¥) published final regulations which provide guidance for employers and individuals relating to the implementation of the 0.9% Additional Hospital Insurance Tax on income above certain prescribed threshold amounts (the ?Ç£Additional Medicare Tax?Ç¥). The 0.9% Additional Medicare Tax was added by the Patient Protection and Affordable Care Act and generally applies to wages exceeding $250,000 for married taxpayers filing a joint return, $125,000 for married taxpayers filing separate returns, and $200,000 for all other taxpayers. The regulations address the requirement that employers withhold the Additional Medicare Tax and file a return reporting this tax. The regulations also address the employer process for adjusting underpayments and overpayments of the Additional Medicare Tax and the employer and individual processes for filing a claim for a tax refund. The regulations are effective for quarters beginning on or after November 29, 2013. However, since the withholding rules have been… Continue Reading

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