Some of the most challenging issues faced by administrators of qualified retirement plans involve QDROs, which are court orders assigning a portion of a participant’s retirement benefit to another person, such as a spouse or dependent, in the case of divorce. Divorces are often messy and contentious, and many family law and divorce attorneys are not well-versed in the QDRO requirements of ERISA and the Code, or the nuances and limitations of various types of qualified retirement plans, leading to additional challenges in administering QDROs and making QDRO issues even more difficult to resolve. Below are some “best practices” which, if followed, may help qualified plans avoid QDRO headaches: Plans are required to establish reasonable procedures to determine the qualified status of domestic relations orders and to administer plan distributions pursuant to QDROs. Many plan sponsors maintain “sample QDROs” as a part of their QDRO procedures. Using a sample QDRO… Continue Reading
Proposed Required Minimum Distribution Regulations Clarify Application of Ten-Year Rule for Designated Beneficiaries
The IRS recently issued proposed regulations interpreting the changes in the required minimum distribution requirements resulting from enactment of the SECURE Act. Under the ten-year rule, a distribution of the participant’s entire interest must be made to a designated beneficiary who is not an eligible designated beneficiary within ten years after the death of the participant, regardless of whether the owner died before reaching his or her required beginning date. Among the proposed regulations, the IRS clarified that if a participant dies following his or her required beginning date, in addition to satisfying the ten-year rule, the participant’s benefit must also continue to be distributed to the beneficiary at least as rapidly as it was being distributed when the participant died. The IRS Proposed Regulations are available here.
The Consolidated Appropriations Act of 2022 (“CAA”), enacted on March 15, 2022, extends the optional relief previously provided under the CARES Act regarding the ability of a high deductible health plan (“HDHP”) to cover telehealth services without application of the deductible. Under the CARES Act relief, which applied to plan years beginning on or before December 31, 2021, a participant in an HDHP that adopted the relief could obtain pre-deductible telehealth services without compromising his or her ability to make contributions, or have contributions made, to a health savings account. See our prior blog post about the CARES Act relief here. The extension of the telehealth relief under the CAA is not retroactive to January 1, 2022, but instead is effective only for months beginning after March 31, 2022, and before January 1, 2023, thus creating a gap in the relief for calendar year plans (and certain non-calendar year plans)… Continue Reading
Whenever a new president from a different political party is elected, it’s not unusual for plan sponsors to expect changes in policy resulting in new laws and regulations impacting benefit plans. Though President Biden’s administration primarily focused on the pandemic and other areas of foreign and domestic policy in its first year, it recently has turned its attention to benefit plans with the issuance of two new proposed regulations, as described below. Proposed Regulations on Required Minimum Distributions – On February 24, 2022, the IRS released proposed regulations that update the required minimum distribution requirements to reflect changes made by the SECURE Act and contain additional guidance regarding required minimum distribution requirements. The IRS is currently taking comments on the proposed regulations until May 25, 2022. Proposed Regulations on Prohibited Transaction Exemption Filing Procedures – The DOL recently announced proposed amendments to the procedures governing the filing and processing of… Continue Reading
The DOL issued guidance reminding responsible 401(k) plan fiduciaries of their ongoing duty to monitor investments and cautioning that the DOL “has serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies, or other products whose value is tied to cryptocurrencies.” The DOL listed five reasons why cryptocurrency investments and their derivatives (collectively, “Crypto”) may not be a prudent selection at this time and threatened that 401(k) plan fiduciaries who allow Crypto as an investment option (even if through a brokerage window) “should expect to be questioned about how they can square their actions with their duties of prudence and loyalty.” Accordingly, 401(k) plan fiduciaries who are contemplating including or retaining Crypto as a plan investment option should factor this DOL guidance into their decision-making process. Compliance Assistance Release No. 2022-01 is available here.
Eleventh Circuit Affirms Summary Judgment Because ERISA Plan Included Unambiguous Reservation of Rights Language
In Klaas v. Allstate Ins. Co., Allstate sponsored an employee welfare benefit plan subject to ERISA that paid life insurance premiums for certain retirees. Allstate made various representations that this benefit would continue for the remaining lives of the retirees. In 2013, Allstate informed the retirees that it would stop paying their life insurance premiums. The retirees sued alleging Allstate violated ERISA by no longer paying those premiums after making representations that the benefit would continue for a lifetime. The Eleventh Circuit affirmed the district court’s ruling, holding that no ERISA violation occurred because Allstate’s plan documents contained a no-vesting clause and an unambiguous reservation of rights provision that gave Allstate the right to modify or terminate retiree life insurance at any time. This case is a good reminder to pay careful attention to what insurers and third-party administers put into your plan documents. Unlike retirement plans subject to ERISA,… Continue Reading
The United States District Court for the Eastern District of Texas recently invalidated portions of an interim final rule (the “Rule”) issued by the Departments of Health and Human Services, Labor, and the Treasury (the “Departments”) relating to aspects of the federal independent dispute resolution process under the No Surprises Act (the “Act”). Generally, the court vacated the portion of the Rule that creates a rebuttable presumption that the amount closest to the qualifying payment amount (generally, the average contracted rate) is the proper payment amount. The court found those portions of the Rule conflicted with the Act. In response, the DOL issued a memorandum emphasizing that all other rulemaking by the Departments under the Act has not been affected and thus all such other rulemaking is still in force. Only guidance documents that are based on, or refer to, the portions of the Rule that were invalidated were withdrawn… Continue Reading
During the first quarter of each year, employers begin the annual process of establishing incentive compensation for their management teams, both in the form of cash and equity awards. Typically, the equity awards will contain a mix of time and performance-based vesting conditions. While trends vary by industry, this year one pattern has remained true among all industries – employers are trying to balance the challenge of satisfying shareholders in a volatile stock market while retaining key employees in a tightening labor market. Some ways employers are attempting to meet this challenge include: Continuing to favor RSUs over stock options. Since options typically use an exercise price equal to the fair market value of the company’s stock on the date of grant, options can be less incentivizing in a volatile market (where they can easily become out of the money). RSUs provide the employee with the full value of the… Continue Reading