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DOL Issues Missing Participant Guidance

The DOL issued three pieces of guidance relating to missing participants in tax-qualified retirement plans. In response to the new guidance, described in more detail below, employers should again review their plan documents and any plan policies and procedures, to ensure they align with the DOL’s requirements and best practices for avoiding and handling missing participants. In Field Assistance Bulletin No. 2021-01, the DOL issued a temporary enforcement policy on the use of the Pension Benefit Guaranty Corporation’s (“PBGC”) Defined Contribution Missing Participants Program for terminating defined contribution plans. Under the temporary enforcement policy, the DOL will not pursue violations under ERISA’s fiduciary rules if the plan fiduciary of a terminating defined contribution plan transfers the benefits of missing participants to the PBGC under the program and otherwise follows the requirements of the DOL fiduciary safe harbor regulation at 29 CFR 2550.404a-3. In Compliance Assistance Release No. 2021-01, the DOL issued… Continue Reading

New Year’s Resolutions to Ensure Proper ERISA Fiduciary and HIPAA Privacy Training

With the start of the new year, a good New Year’s resolution for employers that sponsor ERISA retirement and/or health and welfare benefit plans is to ensure that all current ERISA plan fiduciaries—including any new members of plan administrative and investment committees—have received up-to-date ERISA fiduciary training. ERISA litigation brought against individual plan fiduciaries has significantly increased in recent years. Plan fiduciaries assume responsibilities and make decisions that could potentially subject them to substantial personal liability. To mitigate this risk exposure, each committee member (or other ERISA plan fiduciary) should receive fiduciary training initially upon becoming a plan fiduciary and at least annually thereafter. Plan fiduciaries need to understand (i) when they are acting on behalf of the plan’s participants in a fiduciary capacity, (ii) the different fiduciary roles under a plan and how fiduciary liability can attach in different ways, (iii) the difference between fiduciary decisions and non-fiduciary (“settlor”)… Continue Reading

The Consolidated Appropriations Act of 2021 and Benefits Changes Employers Need to Focus on Right Now

Retirement Plans Additional Relief May Help Prevent Partial Plan Terminations The recently adopted Consolidated Appropriations Act of 2021 (the “CAA”) provides relief for qualified retirement plans of employers that had to reduce their workforce as a result of the pandemic (through furloughs, layoffs, or terminations) for plan years that include the period beginning on March 13, 2020 and ending on March 31, 2021. Specifically, these plans shall not be treated as incurring a partial plan termination if the number of active participants covered by the plan on March 31, 2021 is at least 80% of the number of active participants that were covered by the plan on March 13, 2020. A partial plan termination generally occurs when more than 20% of a plan’s participants are terminated in a plan year. If a partial plan termination occurs, then the plan is required to 100% vest any “affected employees”. “Affected employees” are… Continue Reading

The DOL Finalizes the Prohibited Transaction Exemption Covering Investment Advice Fiduciaries

The DOL recently finalized Prohibited Transaction Exemption 2020-02 – Improving Investment Advice for Workers & Retirees (“PTE 2020-02”) for investment advice fiduciaries.  PTE 2020-02 finalizes the proposed exemption which we previously reported on here.  This guidance for investment advice fiduciaries completes the regulatory process that began in 2016 with the new fiduciary regulations and exemptions issued under the Obama administration, which were vacated in 2018, and the reinstatement of prior regulations and the issuance of new exemption guidance earlier this year.  While PTE 2020-02 makes some changes to the proposed exemption, it largely retains the proposed exemption’s protective framework, including the “Impartial Conduct Standards” (under which investment advice fiduciaries must provide advice that is in the retirement investor’s “best interest”), required disclosures, implementation of policies and procedures to comply with the standards and mitigate conflicts of interest, and retrospective compliance review.  The final exemption also includes a self-correction mechanism for… Continue Reading

Controlled Group Companies are Potentially Liable if a Dissolving Company Does Not Terminate its ERISA Plans and is Not Replaced by a New Plan Sponsor

In Pension Benefit Guaranty Corp. v. 50509 Marine LLC, the U.S. Court of Appeals for the Eleventh Circuit held that “where the sponsor of an ERISA plan dissolves under state law but continues to authorize payments to beneficiaries and is not supplanted as the plan’s sponsor by another entity, it remains the constructive sponsor such that other members of its controlled group may be held liable for the plan’s termination liabilities.”  In this case, Liberty Lightening Co. Inc. (“Liberty”) sponsored and administered a pension plan under ERISA (the “Pension Plan”).  When Liberty went bankrupt and was dissolved under state law in 1992, Liberty continued to be the de facto sponsor of the Pension Plan, and the Pension Plan continued to operate.  In 2012, the Pension Plan was formally terminated and taken over by the Pension Benefit Guarantee Corporation (the “PBGC”) due to the Pension Plan’s pending insolvency.  Six years later, the… Continue Reading

Is it Time for an Investment Committee Tune-up?

Companies sponsoring a 401(k) plan to help their employees save for retirement often form an investment committee to help select plan investments without realizing the duties that the committee assumes.  To help prevent investment committee members from unintentionally breaching their fiduciary duties, companies periodically review their investment committee compliance and should keep complete records of appointments, policies, and procedures.  The following investment committee checklist can be a starting point for this review: Review the underlying plan document to determine who it lists as the “named fiduciary”.  Most plan documents provided by third party administrators list the “plan sponsor” as the named fiduciary, which means the board of directors is the governing body responsible for acting as a fiduciary, absent a delegation of such fiduciary responsibility by the board of directors to a committee.  If your plan lists the “plan sponsor” as the named fiduciary and you have a committee selecting… Continue Reading

Claim Alleging Unauthorized Payroll Deductions for Tobacco Surcharge Preempted by ERISA

In the recent case of Mebane v. GKN Driveline N. Am., Inc., No. 1:18-CV-00892 (M.D.N.C. Nov. 05, 2020), the federal district court held that a claim brought under the North Carolina Wage and Hour Act (“NCWHA”) is preempted by ERISA. The employee-plaintiffs in this case alleged their employer violated the NCWHA by deducting from their paychecks, without express authorization, a monetary penalty for those employees who participate in the employer’s group health plan and use tobacco products (i.e., a so-called “tobacco surcharge”). The defendant-employer filed a motion to dismiss this claim for unauthorized payroll deductions as being preempted by ERISA. The court agreed and dismissed the employees’ claim, ruling that it was preempted by ERISA. The court’s opinion is available here.

IRS Announces 2021 Qualified Retirement Plan Limits

The IRS recently announced cost-of-living adjustments for 2021. Below is a list of some of the key annual limits that will apply to qualified retirement plans in 2021: Compensation limit used in calculating a participant’s benefit accruals: increased to $290,000. Elective deferrals to 401(k) and 403(b) plans: remains unchanged at $19,500. Annual additions to a defined contribution plan: increased to $58,000. Catch-up contributions for employees aged 50 and over to 401(k) and 403(b) plans: remains unchanged at $6,500. Annual benefit limit for a defined benefit plan: remains unchanged at $230,000. Compensation dollar limit for defining a “key employee” in a top heavy plan: remains unchanged at $185,000. Compensation dollar limit for defining a “highly compensated employee”: remains unchanged at $130,000. View the full list of 2021 plan limits in Notice 2020-79 here.

Want to Elect to Have a Safe Harbor Plan for 2021? – The Time is Now

As we previously reported here, earlier this year, the IRS provided relief to plan sponsors of safe harbor 401(k) and 403(b) plans, allowing them to amend their plans mid-year to suspend or reduce safe harbor contributions through the end of the 2020 plan year. Many employers elected to make this change in order to reduce overall costs to help them weather the COVID-19 pandemic. Plan sponsors who want to go back to a safe harbor plan design for 2021 must (i) amend their plan documents before the end of the year to include safe harbor contributions; (ii) notify their third party administrators as soon as possible so that the third party administrator is prepared to administer the plan as a safe harbor plan; and (iii) provide the required safe harbor notice to participants at least 30 days (and not more than 90 days) before the beginning of the plan year.… Continue Reading

Delegating Fiduciary Duties Under ERISA Plans

The recent decision in Hampton v. National Union by the U.S. District Court for the Northern District of Illinois highlights the importance of following the provisions in ERISA plan documents for delegating fiduciary duties to entities acting as plan fiduciaries, such as third-party service providers and insurers. Following the death of her husband, who was an employee of The Boeing Company (“Boeing”), the plaintiff sought to recover accidental death and dismemberment benefits under insurance policies sponsored by Boeing, for which she was the sole designated beneficiary. After National Union, which underwrote and co-administered the policies with AIG Claims, Inc., denied the plaintiff’s initial benefits claim, as well as her appeal of such denial, the plaintiff brought suit under ERISA. The plaintiff argued that the court should apply a de novo standard of review (i.e., no deference given to the plan fiduciary’s prior decisions) because National Union did not have discretionary… Continue Reading

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