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DOL Supplements Prior Information Letter on Private Equity in Designated Investment Alternatives

The DOL recently published a supplement statement (the “Supplement Statement”) relating to its June 3, 2020 Information Letter (the “Letter”) regarding the use of private equity investments in designated investment alternatives for individual account retirement plans. The Letter stated that a plan fiduciary would not violate the fiduciary duties under ERISA solely due to the plan fiduciary’s offering of a professionally managed asset allocation fund with a private equity component as a designated investment alternative, subject to the conditions set forth in the Letter. The DOL noted that the Letter was not an endorsement of such private equity investments and that plan fiduciaries must determine whether such an investment is prudent and made solely in the interests of plan participants and beneficiaries. Our prior blog post regarding the Letter is available here. The Supplement Statement clarified that plan fiduciaries should not misread the Letter “as saying that [private equity]—as a… Continue Reading

Retirement Plan Death Beneficiary Provisions that Reduce Potential Liability

When a retirement plan participant dies without a valid beneficiary designation on file, death benefits will typically be paid pursuant to the plan’s default beneficiary provisions. These provisions should be drafted to avoid placing an undue burden on the plan administrator (which is often the plan sponsor). When the plan document requires the plan administrator to determine a participant’s heirs, the process of administering the death benefit can be costly and time-consuming and may lead to the risk that the plan will have to pay a duplicate benefit. For example, a duplicate payment could result because children from a previous marriage were overlooked, the participant remarried after terminating employment, or competing heirs provide incomplete or misleading information. However, plans can be drafted to provide that the default beneficiary is the participant’s surviving spouse, and if there is no spouse, the participant’s estate. If the estate is not probated, the risk should be shifted from… Continue Reading

Federal Agencies Issue Proposed Revisions to Form 5500 Return/Report

The DOL, PBGC, and IRS (the “Agencies”) recently issued a Notice of Proposed Revision (the “Notice”) to update the Form 5500 Annual Return/Report filed for employee pension and welfare benefit plans. The DOL simultaneously issued a Notice of Proposed Rulemaking to implement the revisions proposed in the Notice. These proposed revisions primarily relate to certain statutory amendments to ERISA and the Code enacted as part of the SECURE Act and include other changes intended to improve Form 5500 reporting. Specifically, the Notice describes the following proposed revisions to the Form 5500 Annual Return/Report:  Consolidation of the Form 5500 reporting requirement for defined contribution retirement plan groups by (i) adding a new type of direct filing entity called a “defined contribution group” reporting arrangement, and (ii) establishing a new reporting schedule for such arrangement; Modifications to reflect pooled employer plans as a type of multiple employer pension plan (“MEP”) and implement… Continue Reading

IRS Releases New Issue Snapshots

Periodically, the IRS will release guidance that highlights compliance issues that are either common issues found on audits or current concerns of the IRS. The IRS recently issued the following Issue Snapshots highlighting certain compliance issues for retirement and deferred compensation plans: IRC Section 457(b) Eligible Deferred Compensation Plan – Written Plan Requirements, Application of IRC Section 415(c) When a 403(b) Plan is Aggregated with a Section 401(a) Defined Contribution Plan, Church Plans, Automatic Contribution Arrangements, and the Consolidated Appropriations Act, 2016, and Preventing the Occurrence of a Nonallocation Year under Section 409(p). If your company currently sponsors an employee benefit plan that could be impacted by the issues highlighted in these snapshots, these snapshots are a good reminder to make sure your plan is in compliance.  The Issue Snapshots are available here.

As Plan Administrator, the Employer is Liable – Not the Service Provider (i.e., What Kind of Indemnification Are You Getting?)

The plan administrator of an employee benefit plan (employee welfare or retirement) has the general fiduciary responsibility under ERISA to ensure the operational and documentary compliance of the plan. Under ERISA, the sponsoring employer is the plan administrator unless another person or entity is named in the plan. This generally means the employer retains ultimate responsibility and liability for legal compliance even though the employer may rely heavily on the plan’s third-party service providers. One way to mitigate this liability is to obtain indemnification from a service provider for the service provider’s errors, for which the employer (as plan administrator) would still be legally liable. The default language in third-party service provider contracts often provides indemnification only for the service provider’s “gross negligence”, but not its “ordinary negligence”, thus leaving the employer responsible for correcting (and paying for) errors caused by the service provider that do not amount to “gross negligence” or “intentional… Continue Reading

Retirement Plan Cybersecurity—Truth, Justice, and the DOL Way

At a time when digital security and cyberattacks are key concerns for individuals and businesses alike, plan sponsors and other plan fiduciaries have a key role to play in protecting retirement plan assets and data. Otherwise known as “responsible plan fiduciaries,” these individuals and certain plan service providers have a fiduciary duty to ensure there is a robust cybersecurity program in place to keep plan assets and data secure. As we previously reported on our blog here, the DOL recently issued guidance in this arena to keep employers and plan fiduciaries compliant. The DOL is now specifically targeting employers and plan fiduciaries who fail to adequately protect employee retirement plan assets from hackers and cyberthieves, so the time to act is before the DOL issues a plan audit and before participants are victimized by cybercriminals or hackers. The DOL requires that plan fiduciaries responsible for prudently selecting and monitoring service… Continue Reading

IRS Publishes Updated Operational Compliance Checklist

The IRS recently updated its Operational Compliance Checklist (the ?Ç£Checklist?Ç¥) to include qualification requirements that will become effective during the 2021 and 2022 calendar years. Examples of items added to the Checklist for 2021 and 2022 include, among other things: Final regulations relating to updated life expectancy and distribution tables used for determining minimum required distributions; The SECURE Act requirement that qualified cash or deferred arrangements must allow long-term employees (i.e., employees who work at least 500 but less than 1,000 hours per year for three consecutive 12-month periods beginning on or after January 1, 2021) to participate; and Temporary relief from the physical presence requirement for spousal consents under qualified retirement plans. The Checklist is only available online and is updated periodically to reflect new legislation and IRS guidance. The Checklist does not, however, include routine, periodic changes, such as cost-of-living increases, spot segment rates, and applicable mortality tables,… Continue Reading

Voluntary Correction Program Applications ?Çô Best Practices

The IRS recently issued a list of the top errors it finds in Voluntary Correction Program (?Ç£VCP?Ç¥) submissions, which is available here. The errors listed generally relate to issues associated with the submission of files in the correct PDF format, failing to pay the correct user fee, or the incorrect submission of the Form 8950. Filing a VCP application can be a useful method for plan sponsors to correct operational issues that have spanned numerous years or?á other issues for which self-correction is unavailable. Errors in the submission can delay resolution of the application or, in some cases, cause a rejection of the application. In addition to the common errors outlined by the IRS, plan sponsors should also use care to avoid the following additional common issues: Failure to Submit a Comprehensive Filing ?Çô If one operational error is found, plan sponsors should conduct a self-audit prior to filing a… Continue Reading

ARPA Relaxes Funding Requirements for Single Employer Defined Benefit Pension Plans

Section 9705 of the American Rescue Plan Act of 2021 (?Ç£ARPA?Ç¥) extends the amortization period for prior year shortfalls from seven to 15 years, beginning with the 2022 plan year (or, at the election of the plan sponsor, the 2019, 2020, or 2021 plan year). Section 9706 of the ARPA both modifies and extends the funding stabilization percentages for single employer defined benefit pension plans through 2029 and allows plan sponsors to elect whether to have these modified percentages apply for all purposes or solely for the purpose of determining the plan?ÇÖs adjusted funding target attainment percentage.?á The plan sponsor may further elect whether to apply the modified percentages beginning with the 2020, 2021, or 2022 plan year.?á The ARPA is available here.?á

Required Minimum Distributions: A Tragedy in Three Acts

The SECURE Act and CARES Act made significant changes to required minimum distributions (?Ç£RMDs?Ç¥). What should you be doing to ensure your retirement plans are administered correctly? The first step is to understand your options. SECURE Act Shifts the Start Before the SECURE Act, RMDs had to begin by April 1st of the calendar year following the later of (i) the calendar year during which the participant retires or (ii) the calendar year in which the participant turns age 70??.?á Following the passage of the SECURE Act, the age cutoff in that rule changed from age 70?? to age 72, but only for individuals who turned age 70?? on or after January 1, 2020 (i.e., individuals born on or after July 1, 1949). In short, those terminated vested participants born before July 1, 1949 had to start their RMDs by April 1 of the year after turning 70??, while those… Continue Reading

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