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DOL Issues Missing Participant Guidance

The DOL issued three pieces of guidance relating to missing participants in tax-qualified retirement plans. In response to the new guidance, described in more detail below, employers should again review their plan documents and any plan policies and procedures, to ensure they align with the DOL?ÇÖs requirements and best practices for avoiding and handling missing participants. In Field Assistance Bulletin No. 2021-01, the DOL issued a temporary enforcement policy on the use of the Pension Benefit Guaranty Corporation?ÇÖs (?Ç£PBGC?Ç¥) Defined Contribution Missing Participants Program for terminating defined contribution plans. Under the temporary enforcement policy, the DOL will not pursue violations under ERISA?ÇÖs fiduciary rules if the plan fiduciary of a terminating defined contribution plan transfers the benefits of missing participants to the PBGC under the program and otherwise follows the requirements of the DOL fiduciary safe harbor regulation at 29 CFR 2550.404a-3. In Compliance Assistance Release No. 2021-01, the DOL issued… Continue Reading

Ordinary Employee Benefits Issues That Can Cause Extraordinary Problems in M&A Deals

Employee benefits rarely drive corporate transactions, but if the benefits of a target company are not reviewed carefully, they can sometimes derail the transaction.  Even some of the most routine facets of benefit plan administration can result in significant potential financial exposure (e.g., additional employer contributions, taxes, penalties, and fees as well as fees associated with the preparation and filing of IRS and DOL correction program applications) that could negatively affect the overall value of the target company. By identifying issues early in the transaction, the seller can prevent costly purchase price reductions and identify issues that need correction, while the buyer can avoid overpaying for a target and ensure that representation and warranty insurance will be available to cover potential claims. Some of those routine compliance issues include, but are not limited to, the following: Failing to timely file an annual Form 5500.  The DOL can assess a penalty… Continue Reading

Is it Time for an Investment Committee Tune-up?

Companies sponsoring a 401(k) plan to help their employees save for retirement often form an investment committee to help select plan investments without realizing the duties that the committee assumes.?á To help prevent investment committee members from unintentionally breaching their fiduciary duties, companies periodically review their investment committee compliance and should keep complete records of appointments, policies, and procedures.?á The following investment committee checklist can be a starting point for this review: Review the underlying plan document to determine who it lists as the ?Ç£named fiduciary?Ç¥.?á Most plan documents provided by third party administrators list the ?Ç£plan sponsor?Ç¥ as the named fiduciary, which means the board of directors is the governing body responsible for acting as a fiduciary, absent a delegation of such fiduciary responsibility by the board of directors to a committee.?á If your plan lists the ?Ç£plan sponsor?Ç¥ as the named fiduciary and you have a committee selecting… Continue Reading

IRS Issue Snapshot Highlights Plan Sponsor Responsibilities to Missing Participants and Beneficiaries

The IRS recently published an Issue Snapshot (the ?Ç£Snapshot?Ç¥) on IRS.gov that revisits the steps a plan sponsor must complete in order to locate missing plan participants and beneficiaries. While the Snapshot does not contain any new guidance, its publication is an indication that ensuring plan sponsors are undertaking appropriate steps to locate missing participants and beneficiaries remains an area of focus for the IRS, including when they are conducting plan audits. Under current IRS guidance, plan sponsors should complete the following steps to attempt to locate missing plan participants and beneficiaries: Search for alternate contact information (address, telephone number, email, etc.) held by the plan or any related plan, sponsor, or publicly-available records or directories. Use a commercial locator service, credit reporting agency, or proprietary Internet search tool for locating individuals. Mail a letter via certified mail to the last known mailing address and through any appropriate means for… Continue Reading

Federal Tax Withholding and Reporting Requirements for Distributions from a Qualified Retirement Plan to a State?ÇÖs Unclaimed Property Fund

Third party administrators for employer-sponsored qualified retirement plans often recommend to employers that unclaimed account balances for mandatory cash-outs of small amounts (under $1,000) be remitted to the unclaimed property fund for the participant?ÇÖs state of residence. The IRS recently clarified in Rev. Rul. 2020-24 that amounts remitted to a state?ÇÖs unclaimed property fund are subject to withholding under Section 3405 of the Internal Revenue Code (the ?Ç£Code?Ç¥) and, in the event the amounts distributed exceed $10, reporting under Section 6047 of the Code. A plan sponsor will not be treated as failing to comply with the withholding and reporting requirements with respect to payments made before the earlier of January 1, 2022 or the date it becomes reasonably practicable for the plan sponsor to comply with such requirements. An employer that sponsors a qualified retirement plan should discuss this guidance with their plan?ÇÖs third-party administrator to ensure that any… Continue Reading

IRS Announces 2021 Qualified Retirement Plan Limits

The IRS recently announced cost-of-living adjustments for 2021. Below is a list of some of the key annual limits that will apply to qualified retirement plans in 2021: Compensation limit used in calculating a participant?ÇÖs benefit accruals: increased to $290,000. Elective deferrals to 401(k) and 403(b) plans: remains unchanged at $19,500. Annual additions to a defined contribution plan: increased to $58,000. Catch-up contributions for employees aged 50 and over to 401(k) and 403(b) plans: remains unchanged at $6,500. Annual benefit limit for a defined benefit plan: remains unchanged at $230,000. Compensation dollar limit for defining a ?Ç£key employee?Ç¥ in a top heavy plan: remains unchanged at $185,000. Compensation dollar limit for defining a ?Ç£highly compensated employee?Ç¥: remains unchanged at $130,000. View the full list of 2021 plan limits in Notice 2020-79 here.

Delegating Fiduciary Duties Under ERISA Plans

The recent decision in Hampton v. National Union by the U.S. District Court for the Northern District of Illinois highlights the importance of following the provisions in ERISA plan documents for delegating fiduciary duties to entities acting as plan fiduciaries, such as third-party service providers and insurers. Following the death of her husband, who was an employee of The Boeing Company (?Ç£Boeing?Ç¥), the plaintiff sought to recover accidental death and dismemberment benefits under insurance policies sponsored by Boeing, for which she was the sole designated beneficiary. After National Union, which underwrote and co-administered the policies with AIG Claims, Inc., denied the plaintiff?ÇÖs initial benefits claim, as well as her appeal of such denial, the plaintiff brought suit under ERISA. The plaintiff argued that the court should apply a de novo standard of review (i.e., no deference given to the plan fiduciary?ÇÖs prior decisions) because National Union did not have discretionary… Continue Reading

DOL Brief Supports ERISA Claims for Violation of Mental Health Parity Requirements

The U.S. Secretary of Labor (the ?Ç£Secretary?Ç¥) recently filed an amicus (friend of the court) brief with the U.S. Court of Appeals for the First Circuit arguing that, where a beneficiary alleged that he was denied covered mental health benefits because his employer?ÇÖs group health plan applied an exclusion in violation of ERISA?ÇÖs mental health parity requirements, he is authorized to bring a claim for those benefits under ERISA. ERISA Section 502(a)(1)(B) allows a beneficiary to bring a civil action to ?Ç£recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.?Ç¥ The amicus brief was filed in the case of N.R. v. Raytheon Co., in which a beneficiary of the company?ÇÖs self-funded health plan was denied coverage for speech therapy treatment under the terms of… Continue Reading

It?ÇÖs All Part of the Plan ?Çô Consistency is Key to Treating Multiple Documents as One Plan

Plan sponsors of severance plans that set forth the terms of one severance plan in multiple plan documents should consider combining those documents into one document or carefully reviewing each plan document to ensure there are no inconsistencies (including relating to eligibility, effective dates, and benefits) and that each document not only references the other documents but is incorporated into the other documents by reference. Otherwise, the plan sponsor may risk one of the documents being deemed a pay practice exempt from ERISA, subjecting the plan sponsor to state law claims in any state where employees are covered. This risk was recently highlighted in Caggiano v. Teva Pharm. USA, Inc., where former employees (?Ç£Plaintiffs?Ç¥) of Teva Pharmaceuticals, Inc. (?Ç£Defendant?Ç¥) brought two state law causes of action against Defendant based on the denial of separation pay benefits under Defendant?ÇÖs severance plan, which was comprised of a Separation Benefits Plan (?Ç£SBP?Ç¥), a… Continue Reading

M&A Considerations When the Seller Uses a PEO

Smaller companies often use professional employer organizations (?Ç£PEOs?Ç¥) as a way to reduce benefit costs and to assist with many, if not all, human resources and payroll functions. While PEOs may work well for a company?ÇÖs day-to-day operations, they can create headaches and complications in corporate transactions. When acquiring a company that uses a PEO, it is important to consider the following: Seller?ÇÖs representations and warranties relating to employee benefit plan compliance generally include representations and warranties relating to the compliance of the plans it sponsors. Since individual companies do not sponsor PEOs, the typical benefit plan representations and warranties should be modified to include representations and warranties regarding any plans or benefits provided by the seller or its controlled group members plus more limited representations and warranties regarding the plans sponsored by the PEO. Depending on the PEO involved, it may be more difficult to get copies of actual… Continue Reading

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