Anka Miscevic had a history of mental illness. While her husband Zelkjo was sleeping, she stabbed him in the chest and hit him over the head with a baseball bat, killing him. An Illinois state court found Anka not guilty by reason of insanity. The U.S. Court of Appeals for the Seventh Circuit, the first federal appellate court to address ERISA pre-emption of any state slayer statute, held that Illinois’s slayer statute was not pre-empted by ERISA. At the time of his death, Zeijko was a participant in a union pension fund. If a participant were married at the time of his or her death, the fund would pay a pre-retirement death benefit to the surviving spouse. If a participant were not married but had a minor child, the fund would pay a minor child benefit until the child turns 21. Both Anka and her minor child filed competing claims… Continue Reading
For submissions made on or after January 2, 2018, the user fee to correct a qualified plan operational failure under the IRS’s Voluntary Correction Program (“VCP”) will be based on the total amount of net plan assets rather than the number of participants in the plan. Net plan assets are generally determined using the amount listed on the most recent Form 5500 filed for the plan. Additionally, alternative or reduced fees for certain corrections have been eliminated. Therefore, in some cases fees will be significantly lower than under the prior fee schedule, but in other cases, they will be higher because the prior fee schedule based the fee on the number of affected participants, not the number of total participants. Below is the new, simplified fee schedule for VCP submissions, followed by the prior fee schedule. New Fee Schedule: Net Plan Assets VCP Fee • $0 to $500,000 … Continue Reading
The PBGC issued a final rule on December 22, 2017, that expands the missing participants program from covering only terminated PBGC-insured, single-employer defined benefit plans to also covering defined contribution plans (“DC Plans”), such as 401(k) plans, PBGC-insured multiemployer plans, and non-PBGC-insured defined benefit plans sponsored by professional service organizations that terminate on or after January 1, 2018. Participation will be voluntary for DC Plans and professional service organization plans, and terminating DC Plans will have the option of transferring all missing participants’ benefits to the PBGC in lieu of establishing an IRA. There would be a one-time fee upon the transfer of assets to the PBGC, and thereafter participant accounts would not be reduced by ongoing maintenance fees. After a participant is located, the PBGC would pay his or her initial account balance with interest to the participant when located. View the PBGC’s Missing Participants Program webpage. View the… Continue Reading
In Notice 2017-72, the IRS published the Required Amendments List for 2017, which lists statutory and administrative changes in plan qualification requirements that (i) are first effective in the plan year in which the list is published and (ii) may require a plan amendment. This year’s list includes three items that relate to (a) certain market rate of return requirements for hybrid and cash balance plans, (b) benefit restrictions for certain defined benefit plans that are eligible cooperative plans or eligible charity plans, and (c) partial annuity distribution options for defined benefit plans. The deadline for adopting any required amendments described in this year’s Required Amendments List is December 31, 2019. View Notice 2017-72.
The following non-exhaustive list describes year-end action items and the annual notices for retirement plans, which generally must be distributed within a reasonable time prior to the start of the plan year. For calendar year plans, providing the notices outlined below by December 1, 2017 will meet this requirement in most cases. Safe Harbor 401(k) Notice: For 401(k) plans that are designed to comply with the safe harbor requirements of the Internal Revenue Code Automatic Enrollment Notice: For any plan that includes automatic enrollment provisions Qualified Automatic Contribution Arrangement Notice: For plans that are designed to comply with the Internal Revenue Code’s qualified automatic contribution provisions Eligible Automatic Contribution Arrangement Notice: For plans that are designed to comply with the Internal Revenue Code’s eligible automatic contribution provisions Qualified Default Investment Alternative (“QDIA”) Notice: For plans with participant-directed investments that include a QDIA in which a participant’s account will be invested… Continue Reading
The IRS recently announced cost-of-living adjustments for 2018. Below is a list of some of the key annual limits that will apply to qualified retirement plans in 2018: Compensation limit used in calculating a participant’s benefit accruals: increased to $275,000. Elective deferrals to 401(k) and 403(b) plans: increased to $18,500. Annual additions to a defined contribution plan: increased to $55,000. Catch-up contributions for employees aged 50 and over to 401(k) and 403(b) plans: remains unchanged at $6,000. Annual benefit limit for a defined benefit plan: increased to $220,000. Compensation dollar limit for defining a “key employee” in a top heavy plan: remains unchanged at $175,000. Compensation dollar limit for defining a “highly compensated employee”: remains unchanged at $120,000. The full list of 2018 plan limits can be found in IRS Notice 2017-64.
IRS Issues Regulations and Guidance Updating Mortality Tables and Procedures for Using Substitute Mortality Tables
On October 3, 2017, the IRS issued final regulations updating the mortality tables that most defined benefit pension plan sponsors must use when calculating lump-sum benefits for participants and determining annual funding obligations. In addition, the final regulations provide updated procedures for sponsors of large defined benefit plans to use when applying to the IRS to use substitute mortality tables based on actual plan mortality experience. In conjunction with the regulations, the IRS issued Notice 2017-60, which explains the new mortality tables, and Revenue Procedure 2017-55, which explains and supplements the changes to the requirements for using substitute mortality tables. The regulations apply to plan years beginning on and after January 1, 2018. The final regulations are available here. Notice 2017-60 is available here. Rev. Proc. 2017-55 is available here.
In Notice 2017-45, the IRS extended the temporary nondiscrimination relief that it provided in Notice 2014-5 for plan years beginning before 2019. Notice 2014-5 permits certain employers that sponsor a “closed” defined benefit plan and a defined contribution plan to demonstrate that the aggregated plans comply with the nondiscrimination requirements of Section 401(a)(4) of the Internal Revenue Code on the basis of equivalent benefits, even if the aggregated plans do not satisfy the current conditions for testing on that basis. A “closed” defined benefit plan for purposes of these Notices provides ongoing accruals but was amended before December 13, 2013, to limit those accruals to some or all of the employees who participated in the plan as of a certain date (i.e., is frozen to new participants). View IRS Notice 2017-45. View IRS Notice 2014-5.
In Notice 2017-44, the IRS issued model amendments to describe the method of bifurcation for defined benefit plans that offer bifurcated benefit distribution options (i.e., partial lump sum and partial annuity distributions). Bifurcated benefits could arise if a plan that offered a lump sum option wished to offer participants the additional option of taking part of the benefit in a lump sum and part as an annuity. View IRS Notice 2017-44.
In Revenue Procedure 2017-41, the IRS modified requirements for pre-approved plans to receive continuing favorable opinion letters on periodic submission cycles. Importantly, the programs for “master and prototype” plans and “volume submitter” plans are combined and replaced with a single program involving standardized and nonstandardized plans. This new program expands the type of plans that can receive an opinion letter. Some of the major changes include allowing employee stock ownership plans (ESOPs) to have 401(k) features and allowing cash balance plans with an interest rate based on the actual return on plan assets (but not on the actual return on a subset of plan assets). In addition, the beginning and ending submission dates for the third cycle for defined contribution plans are modified to begin on October 2, 2017, and end on October 1, 2018. View Revenue Procedure 2017-41.