The U.S. Department of Labor has released updated model Summary Annual Reports (“SARs”) for retirement plans and for welfare benefit plans that are subject to ERISA. Generally, a plan that is required to file an annual Form 5500 is also required to distribute a SAR to plan participants and beneficiaries within nine months from the end of the plan year. View the updated model SAR for welfare plans. View the updated model SAR for retirement plans.
When participants in a qualified retirement plan terminate employment with the plan sponsor, it can be challenging to ensure that their contact information in the plan’s records is kept up to date and accurate. Inaccurate contact information is problematic for a variety of reasons, including potentially causing an operational failure when such participants do not receive distribution of their plan benefits by their required distribution date, as well as increasing the possibility of fraud when a participant’s information is sent to the wrong address. In addition, a plan sponsor’s failure to make reasonable efforts to locate missing participants would be a breach of their fiduciary duties of loyalty and prudence. Often, the first indication that a participant may be missing is that mail sent to their last known address is returned undeliverable or their distribution checks are returned or remain uncashed. In addition, a plan sponsor should check to see… Continue Reading
The IRS recently published Rev. Proc. 2019-19, which sets forth the most current consolidated statement of the correction programs under the IRS’s Employee Plans Compliance Resolution System (“EPCRS”). Pursuant to the new guidance, which became effective April 19, 2019, eligible plan sponsors may use the self-correction program (“SCP”) component of EPCRS to correct certain failures that were previously only correctable under the voluntary correction program (“VCP”) or Audit CAP components of EPCRS. Unlike VCP and Audit CAP, SCP does not require any filings or payments to the IRS. The amended SCP now includes procedures for correcting certain plan document failures and for correcting certain participant loan failures (including defaulted plan loans). Rev. Proc. 2019-19 also expands the circumstances under which certain operational failures may be corrected by plan amendment under SCP. View Rev. Proc. 2019-19. View a summary of the key changes to the SCP component of EPCRS.
The IRS recently published an updated Operational Compliance Checklist (the “Checklist”), which lists changes in qualification requirements that became effective during the 2016 through 2019 calendar years. Examples of items added to the Checklist for 2019 include, among other things: Changes to the hardship distribution rules enacted by the Bipartisan Budget Act of 2018, such as eliminating the requirement to first take out all available plan loans and expanding the types of contributions eligible for distribution Proposed regulations enacting certain other changes to the hardship distribution rules, such as eliminating the six-month contribution suspension requirement and expanding the safe harbor list of expenses deemed to constitute an immediate and heavy financial need The extension of temporary nondiscrimination relief for closed defined benefit 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… Continue Reading
Under Section 401(a)(9)(A) of the Internal Revenue Code, qualified employer-sponsored retirement plans must commence payment of required minimum distributions to a participant by no later than the participant’s “required beginning date” (“RBD”). A participant’s RBD is defined as April 1 of the calendar year following the later of (i) the calendar year in which the participant attains age 70.5 or (ii) the calendar year in which the participant retires from the employer-plan sponsor. However, the “still-working” exception in the second clause of the previous sentence does not apply to a “five-percent owner” of the employer. Additionally, special rules apply for making required minimum distributions to beneficiaries of deceased participants. With April 1, 2019 around the corner, the following list contains a few reminders for employers regarding required minimum distributions: Once a participant has commenced required minimum distributions from the plan, the participant must continue to receive them even if the… Continue Reading
When participants in qualified retirement plans are no longer current employees of the plan sponsor, it can be challenging to ensure that the contact information in the plan’s records is up to date and accurate. However, inaccurate contact information in the plan’s records is problematic for a variety of reasons, including causing operational failures when participants do not receive distribution of benefits by the plan’s required distribution date and increasing the possibility of fraud when a participant’s information is sent to the wrong address. Plan administrators should review their procedures for locating missing participants and ensure that they are (1) consistent with available guidance from the IRS and the DOL, (2) appropriate for the plan and its participant population, and (3) being followed consistently by the plan administrator or its delegate. Plan administrators should also document any steps undertaken to locate missing participants. The plan’s procedures should also address how… Continue Reading
The Puerto Rico Department of the Treasury recently issued Circular Letter Internal Revenue No. 18-21 (the “Circular”), which announced applicable qualified retirement plan limits for 2019, as required by the Puerto Rico Internal Revenue Code of 2011, as amended (the “PR Code”). For plans qualified only in Puerto Rico, the limits on elective deferrals, catch-up contributions, and after-tax contributions all remain unchanged for 2019, while the limits on annual benefits, annual contributions, plan compensation, and the highly compensated employee threshold all increased for 2019. For plans qualified in both Puerto Rico and the U.S. (including the Federal Government Thrift Plan), the limits on catch-up and after-tax contributions remain unchanged for 2019, while the limits on elective deferrals, annual benefits, annual contributions, plan compensation, and the highly-compensated employee threshold, all increased for 2019. The applicable plan limits are as follows: Annual Benefit Limit (All Defined Benefit Plans): $225,000 (increased from $220,000)… Continue Reading
In the recent case of Jander v. Retirement Plans Committee of IBM, the U.S. Circuit Court of Appeals for the Second Circuit ruled in favor of a group of IBM retirement plan participants who alleged that plan fiduciaries had breached their duty to prudently manage the assets of the IBM Company Stock Fund, an ESOP governed by ERISA. The case was filed after IBM’s stock price declined by more than $12 per share in 2014, following an announcement that IBM would pay $1.5 billion to offload its struggling microelectronics business. Plaintiffs alleged that IBM failed to publicly disclose enormous losses being incurred by the microelectronics business and had continued to report an inflated value for the business (which, in turn, resulted in an artificially high IBM stock price). The district court dismissed the suit, ruling that the plaintiffs had failed to state a duty-of-prudence claim under ERISA because a prudent… Continue Reading
Possible Year-End Deadline for Retirement Plans of Plan Sponsors Involved in a 2017 Corporate Transaction
Generally, employee benefit plans of members of the same controlled group must satisfy certain requirements of the Internal Revenue Code on an aggregated basis (e.g., retirement plan nondiscrimination and coverage testing). Following a corporate transaction, such as a merger or a stock or an asset sale, the benefit plans of the buyer and seller may differ significantly. In order for plan sponsors to have a period of time post-closing to determine how best to structure their benefit plans going forward, Code Section 410(b)(6)(C) provides transition relief by permitting the plans to choose to be operated and tested separately, if certain requirements are met, such as coverage under the plan not being materially modified during a transition period. The transition period begins on the transaction’s closing date and, generally, ends on the last day of the first plan year beginning after the year in which the transaction occurred or, if earlier,… Continue Reading
In Notice 2018-91, the IRS published the Required Amendments List for 2018, 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 did not include any such items. Nevertheless, a required amendment that was listed in the 2016 Required Amendments List must be adopted (if applicable to an employer’s plan) by December 31, 2018. That required amendment relates to restrictions on accelerated distributions from underfunded single-employer, collectively-bargained defined benefit plans due to a plan sponsor’s bankruptcy. Additional information on the 2016 Required Amendments List is available on our prior blog post. View Notice 2018-91