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Sixth Circuit: ERISA Defenses for Employer Stock Fund do not Prevail in Motion to Dismiss

The U.S. Court of Appeals for the Sixth Circuit found that several common defenses to participant stock-drop lawsuits alleging fiduciary breach are not available in the motion to dismiss stage. In its opinion, the Sixth Circuit held that the Moench presumption (presumption of prudence when the plan?ÇÖs terms require a company stock fund) does not apply at the motion to dismiss stage. Plaintiffs do not have to plead enough facts to overcome the presumption in order to survive a motion to dismiss. Additionally, the Sixth Circuit held that ERISA section 404(c) is not available as an affirmative defense at the motion to dismiss stage. The court found that ERISA section 404(c) does not shield fiduciaries from liability for allowing imprudent investment choices to be offered to plan participants. The court also refused to dismiss for inadequate causation on the basis that the participants had an unrestricted right to transfer their… Continue Reading

IRS Releases Revenue Ruling Addressing Application of QJSA and QPSA Rules for Deferred Annuity Contracts under a Profit-Sharing Plan

In Revenue Ruling 2012-3, the IRS describes the application of the qualified joint and survivor annuity (?Ç£QJSA?Ç¥) and qualified preretirement survivor annuity (?Ç£QPSA?Ç¥) rules in the context of a deferred annuity contract purchased under a profit-sharing plan which absent the purchase of a deferred annuity contract would not otherwise be subject to the QJSA or QPSA rules . The Revenue Ruling sets forth three scenarios involving a profit-sharing plan that offers a deferred annuity contract with varying election options and discusses whether each of the scenarios qualifies for the exception under Code Section 401(a)(11)(B)(iii) from the application of the QJSA and QPSA requirements and when such exception is lost with respect to a participant under certain scenarios. This is part of the lifetime annuity initiative from the IRS and Treasury to encourage annuitization of plan benefits, yet adding the annuitization to a profit sharing plan that is otherwise exempt from… Continue Reading

IRS Releases Interim Summary of its Findings from its 401(k) Questionnaires

An IRS report details the interim findings from the surveys the IRS issued to plan sponsors and provides information regarding different aspects of 401(k) plans being offered. It also indicates that many plan sponsors are not aware of the resources available to plan sponsors on its website?áand in general. The summary is available on the IRS website.

IRS Amends Determination Letter Program

The Internal Revenue Service (IRS) announced that it will change several aspects of its employee plans determination letter program, which will take effect for determination letter applications filed on or after February 1, 2012 (for plans assigned to a five-year remedial amendment cycle) or May 1, 2012 (for plans assigned to a six-year remedial amendment cycle). Among the changes made, the IRS has eliminated elective demonstrations regarding coverage and nondiscrimination requirements. Furthermore, only plans that have made limited modifications to a pre-approved volume submitter plan may file the shorter Form 5307. These changes to the determination letter filing procedures will be reflected in Revenue Procedure 2012-6, which will be published on January 3, 2012. This announcement is available here.

IRS Issues 2011 Cumulative List of Changes for Cycle B Plans

The Internal Revenue Service (IRS) issued Notice 2011-97, which includes the 2011 Cumulative List, the list of statutory, regulatory, and guidance changes that the IRS will look for when reviewing individually designed plans submitted for determination letters during the Cycle B submission period, which begins February 1, 2012 and ends January 31, 2013. Notice 2011-97 is available here.

IRS Extends Transition Relief for Puerto Rico Plans

The Internal Revenue Service (IRS) issued Notice 2012-6 which extends until December 31, 2012, the transition relief in Rev. Rul. 2011-1 for transfers from a dually qualified Puerto Rico retirement plan trust to a trust for a plan that is intended to satisfy only the qualification requirements of the Puerto Rico Code. This relief also gives plan sponsors additional time to consider the effect of the changes to the Puerto Rico Code enacted earlier this year. Additionally, the IRS intends to issue guidance in response to comments it received regarding Rev. Rul. 2011-1. This guidance is available here.

DOL Issues Revised Guidance Regarding Use of Electronic Media to Satisfy Participant-Level Fee Disclosure Requirements

The Department of Labor (DOL) released Technical Release 2011-03R, which restates and clarifies the scope of previously issued Technical Release 2011-03. Technical Release 2011-03 provided guidance in the form of an interim enforcement policy regarding the use of electronic media to satisfy the fee disclosure requirements for participant-directed individual account plans with respect to disclosure of certain fee information required for participant directed investment plans and disclosures through continuous access websites for such information. Technical Release 2011-03R is available here.

Second Circuit Holds that Money Purchase Plan Must Pay Benefits Even if Plan Erroneously Overpaid Account to Ex-Spouse under QDRO

An orthopedic surgeon participated in two plans, a profit sharing plan (?Ç£PSP?Ç¥) and a money purchase plan (?Ç£MPP?Ç¥). When he divorced, the terms of the qualified domestic relations order (QDRO) provided that his ex-wife was entitled to half of his account in the PSP, and a fixed amount of $47,358 from the MPP. Due to a clerical error, the third party service provider transferred half of his account in both plans to his ex-wife, resulting in an overpayment of approximately $764,000. When he discovered the error, the participant sued the MPP seeking to recover the funds erroneously removed from his account with interest. The U.S. federal district court entered a $1,571,723.73 judgment against the MPP which included lost earnings. It also entered judgment against the ex-wife to repay the MPP for the same amount. The U.S. Court of Appeals for the Second Circuit held that ERISA?ÇÖs prohibition on alienation does… Continue Reading

Securities and Exchange Commission Issues No Action Letter on 401(k) Plan Fee Disclosure Rules

The Securities and Exchange Commission issued a no action letter providing that information provided by a plan administrator to participants and beneficiaries will be treated as a communication satisfying the requirements of Rule 482 if the information is required by and complies with the Department of Labor?ÇÖs fee disclosure regulation. The letter is available here.

2011 Year-End Retirement Plan Checklist

The following non-exhaustive list of annual notices for retirement plans must be distributed within a reasonable time prior to the start of the plan year. For calendar year plans, providing them by December 1 will meet this requirement. Safe Harbor 401(k) Notice – for 401(k) plans that are designed to comply with the safe harbor requirements of the Internal Revenue Code (the ?Ç£Code?Ç¥);?á?á 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 Code?ÇÖs qualified automatic contribution provisions; Eligible Automatic Contribution Arrangement Notice – for plans that are designed to comply with the Code?ÇÖs eligible automatic contribution provisions; Qualified Default Investment Alternative (QDIA) Notice – for plans with participant-directed investments that include a QDIA in which a participant?ÇÖs account will be invested if the participant fails to make an investment election. Additionally, defined… Continue Reading

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