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?ÇÖs 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?ÇÖs 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?ÇÖs 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?ÇÖs 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?ÇÖs bankruptcy. Additional information on the 2016 Required Amendments List is available on our prior blog post. View Notice 2018-91
The IRS recently announced cost-of-living adjustments for 2019. Below is a list of some of the key annual limits that will apply to qualified retirement plans in 2019: Compensation limit used in calculating a participant?ÇÖs benefit accruals: increased to $280,000. Elective deferrals to 401(k) and 403(b) plans: increased to $19,000. Annual additions to a defined contribution plan: increased to $56,000. 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 $225,000. Compensation dollar limit for defining a ?Ç£key employee?Ç¥ in a top heavy plan: increased to $180,000. Compensation dollar limit for defining a ?Ç£highly compensated employee?Ç¥: increased to $125,000. View the full list of 2019 plan limits in Notice 2018-83.
The IRS?ÇÖs Tax Exempt and Government Entities Division (?Ç£TE/GE?Ç¥) recently issued its Compliance Program Letter for 2019, which lists TE/GE?ÇÖs compliance priorities for the 2019 calendar year. Those priorities include issuing additional guidance under the Tax Cuts and Jobs Act (the ?Ç£Act?Ç¥), which was enacted in December 2017, and expanding its use of Pay.gov and secure messaging with taxpayers and practitioners in the TE/GE?ÇÖs employee plans program. The letter does not list any specific guidance topics to be addressed under the Act or provide that guidance is forthcoming on Internal Revenue Code changes enacted by the Bipartisan Budget Act of 2018, such as changes to the hardship distribution rules. The letter does, however, state that if additional issues are identified in the future, TE/GE will modify its list of priority items to ensure that TE/GE remains focused on the highest priority items. View the 2019 Compliance Program Letter.
The Bipartisan Budget Act of 2018 (the ?Ç£Budget Act?Ç¥) contains changes that will impact 401(k) plans that offer hardship withdrawals. Effective January 1, 2019, the following key changes to the Internal Revenue Code?ÇÖs hardship withdrawal rules become effective: Permissible Contribution Sources Expanded: The contribution sources from which hardship withdrawals are permitted have been expanded to include qualified nonelective contributions (?Ç£QNECs?Ç¥), qualified matching contributions (?Ç£QMACs?Ç¥), 401(k) safe harbor plan contributions, and earnings on such QNECs, QMACs, and employee deferrals (including post-1988 earnings on elective deferrals). Loan Exhaustion Requirement Eliminated: Participants may take a hardship withdrawal without first having to take out all nontaxable loans available under the plan. Six Month Suspension Requirement Eliminated: Plan administrators are no longer required to suspend a participant?ÇÖs elective deferrals for six months following a hardship withdrawal. Although the IRS has not yet issued explanatory guidance regarding these changes, plan sponsors need to decide now how… Continue Reading
New disability benefit claims procedures regulations were issued by the DOL and became applicable to disability benefit claims filed after April 1, 2018. Employers who maintain retirement plans that provide certain disability benefits (i.e., benefits based upon a determination of disability that is made under the plan) must amend the plan?ÇÖs claims procedures by no later than December 31, 2018, to reflect the required changes in disability claims administration. These regulations do not apply to retirement plans that provide disability benefits that are based upon a determination of disability made outside of the plan (e.g., disability determinations made by the Social Security Administration or by the administrator of the employer?ÇÖs long-term disability plan).
As we enter the last quarter of 2018, plan sponsors should ensure that all required plan amendments will be made to their tax-qualified retirement plans by the applicable deadlines and that the plan administrator is prepared for any changes in administrative procedures that will be required as of January 1, 2019. As a practical matter, plans should be amended for any applicable changes as soon as practicable to conform the plan document (and its summary plan description) to match the plan?ÇÖs administration.
A recently released IRS Private Letter Ruling (the ?Ç£PLR?Ç¥) describes a potential approach for an employer to integrate a student loan repayment program with the employer?ÇÖs defined contribution plan. As described in the PLR, the employer proposed to amend its 401(k) plan to permit employees to enroll in a voluntary student loan benefit program (the ?Ç£Program?Ç¥) under which the employer would make a nonelective contribution to an employee?ÇÖs account under the plan for each pay period during which the employee made a student loan repayment equal to a specified amount of eligible compensation. The IRS ruled that, based on the conditions described in the PLR, the Program did not violate the Internal Revenue Code?ÇÖs ?Ç£contingent benefit?Ç¥ prohibition (i.e., an employer cannot offer a benefit, other than a matching contribution, that is contingent upon the employee making contributions to a 401(k) plan). The PLR did not address what impact such a… Continue Reading
IRS Finalizes Rules Permitting Use of Forfeitures to Fund Safe Harbor Contributions, QNECs, and QMACs
As we previously reported, on January 18, 2017, the IRS proposed amendments to regulations under Section 401(k) of the Internal Revenue Code that would permit the use of forfeitures to fund safe harbor contributions, qualified non-elective contributions (?Ç£QNECs?Ç¥), and qualified matching contributions (?Ç£QMACs?Ç¥). The IRS recently finalized the proposed amendments, effective as of July 20, 2018, without substantive changes. The prior regulations had provided that employer contributions could only qualify as safe harbor contributions, QNECs, or QMACs if they were non-forfeitable and not eligible for early distribution at the time they were contributed to the plan. The final regulations now provide that safe harbor contributions, QNECs, and QMACs be non-forfeitable and not eligible for early distribution at the time they are allocated to participants?ÇÖ accounts. View the final regulations.